The purpose of a family trust is to safeguard our assets’ ownership. The way trusts work is that we give the trustees legal ownership of our assets while continuing to use and enjoy them for as long as the trust deed allows. For example, if our family home is under the trust, we no longer own it outright. But we can continue to live there if the trust deed allows it and the trustees agree. Our assets remain under shelter and protection while in a family trust. It also benefits members of our family after we pass away. When we put our assets in a family trust, we lose complete rights to them. But, the trustees own them for the benefit of our family members.
A trust structure could help you save a lot of money on taxes and on your investment property. But you should consult with a knowledgeable financial advisor first. For this, you must keep in mind that a family trust does not permit you to distribute losses. When using a trust to buy an investment property. It’s critical to structure your loan carefully to get the most tax benefit. When approving a trust loan, most lenders require all adult beneficiaries to act as guarantors.
Purchasing a home in the name of a child
It is certain that parents hold property “on trust” for their children. They maintain legal ownership of the property. The objective of parents remains that the children get equal shares. In a nutshell, the child’s beneficial ownership is certain. It connects all third parties, except for a bonafide purchaser of the property.
A family trust means to purchase the property and you as parents become the trustee of the trust. If you had a high deposit, then the cash flow of the property remains positive. Different financing options are available to business owners. A negatively gearing property in a family trust gets a tax benefit. But it is in the case when you operate out of the proper business structure. You can hand over control of the trust to your adult child when the time is right, if ever.
Of course, there will be no capital gains tax or stamp duty. This is because of the fact that you followed the correct advice when establishing the trust structure. Furthermore, you included a company as a trustee. You can keep control even after you’ve handed it over.
Family Trusts Have Drawbacks in the UK
A family trust has a number of drawbacks, including the following:
Loss of asset ownership – By putting personal assets in a trust, the trustees of that trust will be in charge of them. Although you can retain some control by having the authority to appoint and/or remove trustees. At the same time, even by serving as a trustee, any assets you transfer to the trust are no longer yours.
Additional administration – If you create a trust, you must consider the factors like time and money as maintenance expenses. These obligations are necessary to perform.
The cost of forming the trust and transferring assets – There are costs associated with forming a trust. These will vary depending on the nature of the assets. It causes complexity to transfer your trust.
Future legislation changes – Of course, in case of any change in relating laws will affect the trust. It is possible that such changes in legislation could eliminate or affect some of the trust’s original goals.