If you put things into a trust, provided certain conditions are met, they no longer belong to you. This means that when you die their value normally won't be counted when your Inheritance Tax bill is worked out. Instead, the cash, investments or property belong to the trust.
There are no inheritance or estate taxes in Australia. However, you may have tax obligations for the assets you inherit: capital gains tax may apply if you dispose of an asset inherited from a deceased estate. income tax applies as usual to any dividends or rental income from shares or property you inherited.
Principal home owned by company or trust
A person may live in a home that is owned by a company or trust in which they have an interest. The home is assessed as the person's principal home IF the person has reasonable security of tenure.
A Trust does not last forever (unless it is for a charity) but rather has a fixed term. This may be set for a specific date or age (so when a child reaches a certain age, for example) or the settlor may give the Trustee the right to terminate the Trust at their discretion.
What are the issues to consider when setting up a trust? Setting up a trust can cost between R4,000 and R12,000. Careful consideration must be given to the wording of the trust deed because you want to ensure that the trust is both tax effective, and also that your family will continue to benefit when you die.
Another potential advantage is that a trust is a way of keeping control and asset protection for the beneficiary. A trust avoids handing over valuable property, cash or investment while the beneficiaries are relatively young or vulnerable.
The advantages of placing your house in a trust include avoiding probate court, saving on estate taxes and possibly protecting your home from certain creditors. Disadvantages include the cost of creating the trust and the paperwork.
Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.
Put assets into a trust
If you place assets within a trust they will not form part of your estate on death and avoid inheritance tax. You could place assets into a trust for the benefit of your children when they reach the age of 18 for example.
There is normally no IHT to pay if you pass on a home, move out and live in another property for seven years.
Capital Gains Tax Considerations
It's generally better to receive real estate as an inheritance rather than as an outright gift because of capital gains implications. That's because of cost basis, which is cost of the property used to determine the capital gain, if any, when it is transferred.
Parents can transfer ownership of a property to their child in the form of a gift or by transferring equity in the property, but it's important to be aware of the inheritance tax rules that can still apply.
As a homeowner, you are permitted to give your property to your children at any time, even if you live in it. But there are a few things you should be aware of being signing over the family home.
To manage and control spending and investments to protect beneficiaries from their own lack of experience, poor judgment, immaturity or tendency to waste or spend excessively. To reduce income taxes and to shelter assets from estate and transfer taxes.
Once a trust is formed and the assets transferred out of the founder's name, the trust owns the assets. Practically, this means that once the founder passes away, the assets in the trust will not form part of the deceased's estate and will not be liable for estate duty.
Transferring a property into a trust as a gift or to children is a means to securing your assets, but it's important to account for these additional costs. There is a way to avoid inheritance tax in particular, however.
How old do my children have to be to inherit my house? Your child can inherit your house even if they are under the age of 18. However, any inheritance will be held in a trust for them until they reach 18 years old (or a later age specified in your Will). You would need to appoint trustees to oversee the trust.
Property is often transferred into a trust as part of inheritance tax planning however the trust needs to meet certain conditions and to be set up correctly by a solicitor. By putting a property into trust rather than making an outright gift, you are able to control how the property is used after it is given away.
In a trust, assets are held and managed by one person or people (the trustee) to benefit another person or people (the beneficiary). The person providing the assets is called the settlor. Different kinds of assets can be put in trust, including: cash.
Most importantly, a family trust can help to minimize estate taxes once the trust grantor passes away. Otherwise, estate and gift taxes could take a significant bite out of your wealth.
Even though a trust is taxed at the top marginal rate (45% as per 2022), trustees have the authority to distribute rental profits to beneficiaries to minimise the tax position. The tax will then be paid at the beneficiaries' marginal rate.