Trusts are great but in most cases not for owning your Family Home..

Property investors using discretionary (family) trusts to hold investment properties do so often to deliver advantages like;

  • asset protection,
  • flexible estate planning,
  • and possible tax savings.

But a discretionary trust  does not get the land tax threshold in NSW and hence only in certain circumstances does this ownership work.

Understanding Trusts

A trust is not a legal entity like a company is, instead it’s a legal arrangement between at least two parties:

  1. the Trustee, who legally owns and manages the trust assets,
  2. and the Beneficiaries, who benefit from those assets.

This relationship is governed by a Trust Deed, which outlines how the trust should be managed—covering both the underlying assets (the capital) and the income generated from them.

Types of trusts include discretionary (family) trusts, unit trusts, and fixed trusts.

The trust deed determines the type of trust and so it is logical that a well-drafted trust deed is used, one that is ideally tailored to your needs and kept up to date.

Tax laws change and the recent foreign beneficiaries exclusion clause is an example of why deeds need regular review and updating, not doing so can lead costly problems later and change whether the trust is fit for your specific goals.

Are There Tax Advantages?

The main advantage here is rusts can manage tax payable  more effectively by distributing income or losses to beneficiaries in lower tax brackets.

3 reasons why owning your family home in a trust does not make sense

Your main residence is:

  1. Exempt from Capital Gains Tax (CGT) if an individual owns it but the main residence exemption does not apply to trusts.
  2. Your main home typically doesn’t produce income, so there’s no income to distribute
  3. Is usually exempt from land tax.

For most people it does not make sense but there are circumstances where it may but again there is often other better options;

  • Asset Protection: If you’re a business owner or work in a profession exposed to personal liability—think doctors, accountants, or architects—holding your home in a trust may protect it from creditors. Since the property isn’t in your name, it might be out of reach if you’re sued or go bankrupt.

BUT many of these people have their spouse (assuming they’re not at similar risk) own the home in their name. This can still offer some protection, and importantly, it may allow the property to qualify for the CGT main residence exemption.

  • Estate and Succession Planning; People use a trust is for estate planning. If you have clear intentions about who should inherit your home—and you’re worried about your Will being challenged—a trust may provide greater certainty. Ownership and control of the property can be passed according to the terms of the trust rather than your Will.

Owning property via a trust can reduce the burden of probate. When fewer assets are held in your personal name, it may simplify estate administration and reduce associated legal costs—especially if most of your wealth is tied up in your home.

We can help you make the right decisions

Contact us to discuss your situation and explore the best structure for your assets.

We can provide strategic advice on a specific issue or conduct our Step 1 meeting to review and advise on your next best steps and how to reduce exposures.

This may lead you to complete a financial or retirement plan, we’re here to help.

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC and VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose