Are trusts a smart move for managing investments?

Question

I'm in my 40s, as is my wife, and we have two kids under 10. We own one investment property and recently started investing in ETFs and some ASX/NYSE shares, with about $50k invested so far. Our plan is to DCA around $25k annually over the long term.

I recently spoke to a tax accountant about managing our investments, and they suggested setting up a trust. The benefits mentioned were:

1. Tax flexibility: A trust allows more control over how investment income is allocated, potentially saving tax by attributing more income to my wife (who earns less). It could also provide tax benefits in 20 years when cashing out.  
2. Trust with a corporate trustee: This setup offers additional advantages, such as easier fund allocation if we separated and quicker access to funds if one of us passed away. However, it's costlier to set up and maintain than a standard trust.

I’ve never considered this before, so I’m curious:  
- Does anyone use a trust for managing investments, and is it worth it?  
- Is it just something accountants and advisors recommend, or is it genuinely beneficial?  
- If you’ve set up a trust, did you choose a standard trust or one with a corporate trustee, and why?

Thanks for your insights!

Answer

Investing through a trust, including those with a corporate trustee, is a strategy that many Australian investors consider to enhance their financial planning, particularly when it comes to managing investments and tax liabilities effectively. Here are some insights based on your queries:

Usage of Trusts for Managing Investments:
Trusts are commonly used for investment management because they offer significant flexibility in how income and capital gains are distributed among beneficiaries. This can be particularly advantageous for families like yours where there is a variance in income between partners. By distributing investment income to a lower-earning spouse or even potentially to children when they reach a suitable age, you can optimize the tax efficiency of your investments.

Genuine Benefits vs. Professional Recommendations:
While it’s true that financial professionals, such as accountants and advisors, often recommend setting up trusts, it’s not just a service upsell. The benefits of a trust, especially in terms of tax planning and asset protection, are well-documented. Trusts can provide a legal structure that separates the control of an asset from the beneficiary, which can be crucial in scenarios like estate planning or legal disputes.

Choosing Between Standard Trust and Corporate Trustee:
The choice between a standard trust and one with a corporate trustee often depends on the specific needs and complexity of your financial situation. A corporate trustee, generally a company, can offer added benefits such as perpetual succession (the trust can continue even if the trustee changes) and limited liability. However, these come at the cost of higher setup and ongoing maintenance fees. Investors who anticipate complex asset management needs or significant estate planning issues often lean towards a corporate trustee for these reasons.

In your case, considering you have a growing investment portfolio and family considerations like children’s future and estate planning, a trust could indeed be a beneficial structure. The decision between a standard trust and a corporate trustee should weigh the long-term benefits against the initial and ongoing costs. It might be more cost-effective initially to start with a standard trust and transition to a corporate trustee as your financial landscape evolves and becomes more complex.

Regarding your investment strategy, platforms like Pearler can be particularly useful. Pearler is designed for long-term investors and supports features like auto-invest, which could seamlessly align with your strategy of dollar-cost averaging (DCA) $25k annually. Additionally, Pearler’s focus on long-term growth and its user-friendly interface can help you manage your investments efficiently, whether they are held directly or through a trust structure.

You can find out more about this topic here: Tax Implications Buying Us Shares

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

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