We have seen a huge number of self-managed superannuation funds created in the last 20 years as a vehicle to build retirement savings and at the same time, save tax.

This has put old family trust on the back burner to some degree as a legitimate investment vehicle of choice to hold investment assets.

The major advantage of SMSFs is the lower tax rate that applies, however they do carry some limitations which may not suit everybody’s circumstances.

Such limitations may be around how and when to take the money out of the super environment, the limitation of how much you can contribute, what to type of investments you can buy and hold and so forth.

Family trusts, on the other hand, are still considered today as an effective and more flexible vehicle structure in which to own and manage family investment assets.

Some of the advantages of family trusts include:

  • Income splitting to family beneficiaries, more particularly to those who are on low income and thereby, minimise tax
  • You can increase capital in a trust by way of a gift or loan without any restriction – i.e. transfer money or physical assets like property or shares from your own name (note: capital gains, GST and stamp duty need to be factored)
  • Flexible estate planning arrangements with a minimum of fuss and cost after the death of family members – i.e. assets continue to be held inside a trust after death
  • Asset protection
  • No annual audit requirements unlike for an SMSF
  • Cheaper to maintain than an SMSF for passive investment assets

In most cases, particularly if you run a small business, there is always room to consider both the family trust and SMSF structures to own assets. Both vehicles can be run side by side for different purposes to attain the most optimum wealth management outcomes in a most tax efficient way.