Introduction
When it comes to protecting your family home, utilising a trust, specifically a Family Protection Trust (FPT), is a strategy that offers significant benefits not only to protect it but pass it on to your bloodline family members without a challenge. For accountants and financial planners advising clients who either already have a family home in a trust or have clients who are about to acquire a new family home, understanding the importance and advantages of this structure is crucial.
The Importance of Having a Home in a Trust
Placing a family home in a Family Protection Trust provides robust protection against various financial risks and legal challenges. The primary goal is to ensure that the home remains within the family, free from claims by creditors, ex-spouses, and others who might seek to challenge the ownership or distribution of the property.
Five Key Benefits of a Family Protection Trust
Protection from Creditors: By holding the home in a Family Protection Trust, the property is shielded from claims by creditors. This is particularly important for clients who are business owners or professionals at higher risk of litigation. The trust structure separates the ownership of the property from the individual, making it less accessible to creditors.
Safeguarding Post Divorce Settlements: In the unfortunate event of a divorce, assets held in a Family Protection Trust are typically excluded from future relationships and also that of your children. This means that the family home remains protected and ensures that it will continue to benefit bloodline family members.
Avoiding Probate and Minimising Estate Taxes: A Family Protection Trust helps in avoiding the probate process, which can be lengthy and costly. Additionally, it may help in minimising capital gains tax, ensuring that more of the estate's value is preserved for future generations.
Maintaining Control and Flexibility: Trusts offer a level of control and flexibility that is not possible with outright ownership. The terms of the trust can be tailored to suit the specific needs and wishes of the family, allowing for conditional distributions and the appointment of trustees who can make decisions in the best interest of the beneficiaries.
Ensuring Continuity and Succession: A Family Protection Trust ensures that the family home remains within the family for generations. The trust can stipulate that the property is only to be passed down to bloodline descendants, thereby preserving the family legacy and providing a stable home for future generations.
Tax Considerations: The Principal Place of Residence Exemption
From a tax perspective, it is important to note that a trust cannot access the principal place of residence capital gains tax exemption. However, there is a strategic approach to mitigate this:
Long-term Lease Strategy: If the trust enters into a long-term lease agreement, typically over 70 years, the property may qualify for the principal place of residence exemption upon the surrender value of the lease, provided the right circumstances are in place. This approach has been acknowledged by the ATO, offering a viable solution for those looking to maximise capital gains tax benefits while maintaining the protective structure of the trust.
A Word of Caution: State Land Tax Regimes
It's crucial to be aware of the specific land tax regimes in your state, as these can vary and impact the financial benefits of holding a property in a trust. Seeking advice from experts like Abbott and Mourly Lawyers, who offer comprehensive letters of advice and necessary documentation, can ensure that you navigate these complexities effectively.
Conclusion
For accountants and financial planners, advising clients on the benefits of a Family Protection Trust for their family home is an invaluable service. Not only does it provide legal and financial protection, but it also ensures the preservation of family wealth across generations. By understanding and implementing these strategies, you can help your clients secure their most valuable asset – their home – for the future.
For further guidance and detailed advice, contact Abbott and Mourly Lawyers, who specialise in family wealth protection and can provide all the necessary legal support to establish and manage Family Protection Trusts.
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