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How to choose between family trust and SMSF

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Family trusts and SMSFs each carry their own benefits and disadvantages in providing a way to transfer and manage your family wealth. By weighing up the points of difference, you can choose the most appropriate option for you, or in fact whether both entities may assist in achieving your financial goals.

Tax benefits of SMSF

One of the major benefits of using a SMSF is the opportunity to minimise your tax. Investment income is taxed at a maximum of 15 per cent during the accumulation phase, whilst in pension phase, any investment income or capital gains that are attributed to the pension are tax free. Family trusts do not share the same tax benefits, however they are simpler to manage. SMSFs are heavily regulated and require an annual audit, whereas a family trust does not. A family trust will also offer greater flexibility in managing your investment portfolio, including holding assets used for personal use such as a holiday house. SMSFs provide flexibility and control in managing your retirement nest egg, however a holiday house (for example) would not be possible in a SMSF.

You are unable to access your superannuation until you meet a condition of release such as permanent retirement, however if you are in the early stages of wealth accumulation, a SMSF can still play a part in your overall financial picture, depending on your objectives. When used correctly, a family trust can also be an effective way to add to your super. A family trust will allow higher-earning family members to distribute income to lower-earning family members to even out the tax burden among the family and protect assets for current and future generations.

Family trusts and integenerational wealth transfer

A family trust also offers a better avenue for intergenerational wealth transfer than a SMSF. In a family trust, if the beneficiary passes away, the assets remain in the trust and are protected. With a SMSF, any member entitlements must be paid out of the Fund on death of a member which may require liquidating some assets. SMSFs allow for binding death nominations, so as a member you can direct the trustee to pay your entitlements in accordance with your wishes, whether it be directly to a surviving spouse or to your children, or perhaps to your Legal Personal Representative to form part of your Estate.


Get advice on the best structure for your circumstances

If you find the benefits of both options appealing, it is important to note that operating a family trust and a SMSF at the same time is an effective option for many individuals. For example, an individual may make payments to their SMSF (reaping the tax rewards available), until they reach their contribution caps. At this point, they can choose to send their remaining funds to their family trust. In this way, you may have greater flexibility in managing your retirement savings while creating an easier way to manage and pass on your assets to your family’s future generations.

We have a number of expert advisers in the our SMSF team who can advise you on the best options for your situation, whether a SMSF is right for you and/or a family trust. Contact Us.

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