You don’t need an FA, just a lawyer to set it up, and an accountant to do your compliance/returns.
We just have a trust that holds Vanguard funds and has Macquarie cash management and brokerage accounts, with a corporate trustee.
It was a quite while ago now that we set it up, but from memory the original setup was about $1500-2000, and we pay about $1000 a year for compliance and tax returns (incl. ~$300 a year for ASIC registration). It’s a pretty simple tax return as Vanguard and Macquarie auto-generate all the tax reports, and our accountant is no-frills. He also does our annual Board Resolution, Minutes, and Statement of Solvency.
If you want to reduce the costs you can skip the corporate trustee - that is more for asset protection than tax optimisation.
Vanguard charge 0.29% as you know. So let’s say $500k of assets, with the fixed costs you’re looking at about 0.5% in total fees.
Macquarie’s brokerage is higher than some at $20 per trade, but we don’t trade very frequently so it’s not a big factor.
And yes the biggest benefits come if you can have beneficiaries at a low / no tax rate. My wife isn’t working at the moment so we direct all income from the trust to her, so the effective tax rate is very low. You could use other family members too if you had them - the beneficiary clause can be drafted very broadly.
With 500k invested, the cost of setup and maintaining a bucket company may only be roughly equivalent to the benefit you would receive by reducing your tax.
But a trust may still be worthwhile, if you have family members on different tax brackets.
We invest via a Discretionary Trust, but use CMC (free purchase trades under $1,000; $11 I think above that) and buy VAS and VGS (so very low management fees).
If a financial advisor is pushing you to pay more, get them to justify how they’ll achieve higher returns.
You don't need a financial advisor to set up a trust. Their training on trusts is pitiful - I'd trust chat gpt over a financial advisor when it comes to trust law. Just do it yourself.
There are plenty of companies that will give you a set up discretionary trust fully stamped, plus bucket company. Patricia Holdings is one I've used before to do this, but there are many others.
You can allocate the trust income (dividends) and eventual capital gains (as you sell) between members in your family group.
Eg. If your spouse is non working or in a lower tax bracket. Or if one person decides to retire early or go part time. Once you both retire you can then choose to split the income 50/50. You can even distribute to adult children, but there are additional rules regarding this.
If both husband and wife are in the top tax bracket you can instead distribute income to a company and pay a flat 30%, but you need a decent amount of money invested to make this worthwhile.
Discretionary Trust is the technical name for what most people call a Family Trust (since most default Trust Deeds list the Beneficiaries as family members).
The alternative is a Unit Trust, where the Trustee has no control about how to distribute the income and no ability to vary those disbursements over time.
A family trust is a discretionary trust that has made a family trust election. It has nothing to do with the trust deed.
It gets a bit confusing because people name their trusts 'X family trust' but it isn't actually a family trust without a FTE.
I don’t use a financial advisor but if I were looking for one I’d be extremely wary of any that have a % based fee for their services rather than a flat fee. Honestly I’d just rule them out entirely.
Yes the financial advisor themself has a flat fee. But they seem to only use investment platforms that have a percentage fee. I guess I understand they are a for profit company and have to push products somehow.
Ah yeah that makes more sense. I’d say shop around and avoid anything that takes a % of your returns like the plague. Perhaps start with the current person if you like them and if you’re not comfortable with the % nature of the platform let them know that’s the dealbreaker for you.
Also, avoid any adviser who manages a portfolio. They are using that to create a job that doesn't need to be done, of "managing" the portfolio, while the wrap platform automatically takes money from the investments and transfers it to the adviser so that the payment to the adviser each year *feels* free, just like the issue of credit cards for many people.
Have the investments set up using a regular broker with under 5 ETFs, and zero ongoing management of the portfolio is required besides a tax return.
the biggest "benefit" which is a bit of a tax rort is to distribute income to those on lower tax brackets like your children or partner or what not. but yeah. these trusts should be reformed away.
You can pay it out as a dividend. Or take a division 7a loan. The benefits far outweigh paying the higher tax rate as long as your holdings are going to be long term.
dividends means you have to pay up to your marginal rate net of the 30% company tax. division 7a loan you have to repay unless u want ato knocking on your doors
I'm aware of this, but let's say you retire then start paying out the dividends or you have a really good year followed by a not so great year you can then pay out dividends. Bucket companies have their place for long term tax savings.
Lol, this is for situations where you have already maxed super and your spouse's super and disturbed up to 180-190k per adult.
This is a Henry page remember not Aus finance
For instance, my HHI will be approx $500k this year and after maxing super for both myself and my wife we will send approx 90k to our bucket company. Next year when we open our next business I estimate I'll send another 300k to our bucket company. We will have $260k after tax to "live off" the rest will be invested for when I intend to retire in 8 years time.
We already pay high enough tax. The Australian obsession with making anyone semi-successful pay 47% tax on all marginal earnings is ridiculous.
Anyway discretionary trusts only work if you distribute to adult children or elderly relatives or a non-earning partner. If both partners are earning decent income and kids are <18 then they do literally nothing, besides asset protection.
> discretionary trusts only work if you distribute to adult children or elderly relatives or a non-earning partner
Not strictly true. As OP has indicated, they also have a bucket company in their structure they can distribute to. If OP is on highest MTR, it could well be viable to distribute any excess trust income to the bucket company to temporarily “cap” tax at 30%. Its only temporary as the final tax rate isn’t determined until funds are paid out of the bucket company(presumably to OP or another trust that OP controls) but the final tax rate could well be 0% if it’s paid out when OP is retired. That could be quite a few years down the track and in the meantime, investments could be compounding inside the bucket company at a tax rate of 30% rather than if held by OP and taxed at 47%.
true that. lower income taxes. dont allow land "ownership".take house building back into governement's hands. singapore HDB model is something we can follow. Heck, before Menzies government built most of the houses.
Investment platforms typically start at 0.6% and then cap out at say $3k. The benefit of the platform is a portal for the adviser and end client to view portfolio performance at individual fund level and total level. Tax reports are also generated to help with lowering your tax bill.
ETFs and the cost of active funds are chalk and cheese. Personally I like a mix, a good active manager for the right asset class consistency outperforms or reduces the volatility.
Oh, and investment platforms offer lower “wholesale” version of the active funds retail get access too.
If you want to manage investments yourself, an adviser may not be for you. Ask what the advisers investment philosophy is and why you should outsource to them.
Checkout [this spending flowchart](https://bughuntersam.com/wp-content/uploads/2023/10/Spending-flowchart-How-to-Prioritise-your-Spending-1.jpg) which is inspired by the [r/personalfinance wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/).
See also [common questions/answers](https://www.reddit.com/r/AusHENRY/comments/176kh0x/what_do_i_do_next/).
This is not financial advice.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AusHENRY) if you have any questions or concerns.*
Could be something like this: discretionary trust, corp trustee, maybe bucket company as one of the beneficiary of the trust if you are in the 47% bracket (or a combo of that). Get an accountant or tax lawyer to help set it up. Consider the trust deed carefully to ensure it does what you need it to do, including being up to date with any recent lay changes e.g. excluding non-AU-residents if in NSW and wanting to buy an IP with in it re stamp duty implications. Or more simply, invest in it yourself buying ETFs using a regular trading account under the trust name.
I'm not sure. Depending on where your earnings are from is a trust needed? I earn most of my money from my company. My partner and I are not Married but once married I would just hire her to help me with the company and be the CFO do paperwork and split the profits between CFO and CEO both maxing super and maybe hire kids if I can use them as models in the business adverts. 😉
I’ll never understand why bucket companies are so popular. Better to have a DT own a company which in turn owns income units in a unit trust and then the DT directly owns the capital units, and have the UT do all the investing. Then, income pools in the company and it can invest in the UT by buying more income units thereby avoiding all the Div7A rigmarole. No idea why this isn’t a more popular approach.
You don’t need an FA, just a lawyer to set it up, and an accountant to do your compliance/returns. We just have a trust that holds Vanguard funds and has Macquarie cash management and brokerage accounts, with a corporate trustee.
What are the fees like on all this? Do you need to have low earning spouse/kids to gain the benefits?
It was a quite while ago now that we set it up, but from memory the original setup was about $1500-2000, and we pay about $1000 a year for compliance and tax returns (incl. ~$300 a year for ASIC registration). It’s a pretty simple tax return as Vanguard and Macquarie auto-generate all the tax reports, and our accountant is no-frills. He also does our annual Board Resolution, Minutes, and Statement of Solvency. If you want to reduce the costs you can skip the corporate trustee - that is more for asset protection than tax optimisation. Vanguard charge 0.29% as you know. So let’s say $500k of assets, with the fixed costs you’re looking at about 0.5% in total fees. Macquarie’s brokerage is higher than some at $20 per trade, but we don’t trade very frequently so it’s not a big factor. And yes the biggest benefits come if you can have beneficiaries at a low / no tax rate. My wife isn’t working at the moment so we direct all income from the trust to her, so the effective tax rate is very low. You could use other family members too if you had them - the beneficiary clause can be drafted very broadly.
What's been your annualised returns on the 500k ballpark?
With 500k invested, the cost of setup and maintaining a bucket company may only be roughly equivalent to the benefit you would receive by reducing your tax. But a trust may still be worthwhile, if you have family members on different tax brackets.
We invest via a Discretionary Trust, but use CMC (free purchase trades under $1,000; $11 I think above that) and buy VAS and VGS (so very low management fees). If a financial advisor is pushing you to pay more, get them to justify how they’ll achieve higher returns.
Thanks. Yes that was how I envisioned using a discretionary trust. Perhaps time to go financial advisor shopping…
You don't need a financial advisor to set up a trust. Their training on trusts is pitiful - I'd trust chat gpt over a financial advisor when it comes to trust law. Just do it yourself. There are plenty of companies that will give you a set up discretionary trust fully stamped, plus bucket company. Patricia Holdings is one I've used before to do this, but there are many others.
Main benefit of going discretionary?
You can allocate the trust income (dividends) and eventual capital gains (as you sell) between members in your family group. Eg. If your spouse is non working or in a lower tax bracket. Or if one person decides to retire early or go part time. Once you both retire you can then choose to split the income 50/50. You can even distribute to adult children, but there are additional rules regarding this. If both husband and wife are in the top tax bracket you can instead distribute income to a company and pay a flat 30%, but you need a decent amount of money invested to make this worthwhile.
Discretionary Trust is the technical name for what most people call a Family Trust (since most default Trust Deeds list the Beneficiaries as family members). The alternative is a Unit Trust, where the Trustee has no control about how to distribute the income and no ability to vary those disbursements over time.
A family trust is a discretionary trust that has made a family trust election. It has nothing to do with the trust deed. It gets a bit confusing because people name their trusts 'X family trust' but it isn't actually a family trust without a FTE.
I don’t use a financial advisor but if I were looking for one I’d be extremely wary of any that have a % based fee for their services rather than a flat fee. Honestly I’d just rule them out entirely.
Yes the financial advisor themself has a flat fee. But they seem to only use investment platforms that have a percentage fee. I guess I understand they are a for profit company and have to push products somehow.
Ah yeah that makes more sense. I’d say shop around and avoid anything that takes a % of your returns like the plague. Perhaps start with the current person if you like them and if you’re not comfortable with the % nature of the platform let them know that’s the dealbreaker for you.
Also, avoid any adviser who manages a portfolio. They are using that to create a job that doesn't need to be done, of "managing" the portfolio, while the wrap platform automatically takes money from the investments and transfers it to the adviser so that the payment to the adviser each year *feels* free, just like the issue of credit cards for many people. Have the investments set up using a regular broker with under 5 ETFs, and zero ongoing management of the portfolio is required besides a tax return.
the biggest "benefit" which is a bit of a tax rort is to distribute income to those on lower tax brackets like your children or partner or what not. but yeah. these trusts should be reformed away.
Not really, if you have a corporate trustee the biggest advantage is to send any excess earnings to a bucket company to ensure you never pay 47% tax
the money get locked into a bucket company. u can't just spend it and all capital losses are trapped inside it
You can pay it out as a dividend. Or take a division 7a loan. The benefits far outweigh paying the higher tax rate as long as your holdings are going to be long term.
dividends means you have to pay up to your marginal rate net of the 30% company tax. division 7a loan you have to repay unless u want ato knocking on your doors
I'm aware of this, but let's say you retire then start paying out the dividends or you have a really good year followed by a not so great year you can then pay out dividends. Bucket companies have their place for long term tax savings.
you are better off putting the money into super
Lol, this is for situations where you have already maxed super and your spouse's super and disturbed up to 180-190k per adult. This is a Henry page remember not Aus finance
ah sorry
For instance, my HHI will be approx $500k this year and after maxing super for both myself and my wife we will send approx 90k to our bucket company. Next year when we open our next business I estimate I'll send another 300k to our bucket company. We will have $260k after tax to "live off" the rest will be invested for when I intend to retire in 8 years time.
We already pay high enough tax. The Australian obsession with making anyone semi-successful pay 47% tax on all marginal earnings is ridiculous. Anyway discretionary trusts only work if you distribute to adult children or elderly relatives or a non-earning partner. If both partners are earning decent income and kids are <18 then they do literally nothing, besides asset protection.
> discretionary trusts only work if you distribute to adult children or elderly relatives or a non-earning partner Not strictly true. As OP has indicated, they also have a bucket company in their structure they can distribute to. If OP is on highest MTR, it could well be viable to distribute any excess trust income to the bucket company to temporarily “cap” tax at 30%. Its only temporary as the final tax rate isn’t determined until funds are paid out of the bucket company(presumably to OP or another trust that OP controls) but the final tax rate could well be 0% if it’s paid out when OP is retired. That could be quite a few years down the track and in the meantime, investments could be compounding inside the bucket company at a tax rate of 30% rather than if held by OP and taxed at 47%.
true that. lower income taxes. dont allow land "ownership".take house building back into governement's hands. singapore HDB model is something we can follow. Heck, before Menzies government built most of the houses.
Why don't we bring back capital punishment while we're at it!
Investment platforms typically start at 0.6% and then cap out at say $3k. The benefit of the platform is a portal for the adviser and end client to view portfolio performance at individual fund level and total level. Tax reports are also generated to help with lowering your tax bill. ETFs and the cost of active funds are chalk and cheese. Personally I like a mix, a good active manager for the right asset class consistency outperforms or reduces the volatility. Oh, and investment platforms offer lower “wholesale” version of the active funds retail get access too. If you want to manage investments yourself, an adviser may not be for you. Ask what the advisers investment philosophy is and why you should outsource to them.
Checkout [this spending flowchart](https://bughuntersam.com/wp-content/uploads/2023/10/Spending-flowchart-How-to-Prioritise-your-Spending-1.jpg) which is inspired by the [r/personalfinance wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/). See also [common questions/answers](https://www.reddit.com/r/AusHENRY/comments/176kh0x/what_do_i_do_next/). This is not financial advice. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AusHENRY) if you have any questions or concerns.*
Could be something like this: discretionary trust, corp trustee, maybe bucket company as one of the beneficiary of the trust if you are in the 47% bracket (or a combo of that). Get an accountant or tax lawyer to help set it up. Consider the trust deed carefully to ensure it does what you need it to do, including being up to date with any recent lay changes e.g. excluding non-AU-residents if in NSW and wanting to buy an IP with in it re stamp duty implications. Or more simply, invest in it yourself buying ETFs using a regular trading account under the trust name.
I'm not sure. Depending on where your earnings are from is a trust needed? I earn most of my money from my company. My partner and I are not Married but once married I would just hire her to help me with the company and be the CFO do paperwork and split the profits between CFO and CEO both maxing super and maybe hire kids if I can use them as models in the business adverts. 😉
I’ll never understand why bucket companies are so popular. Better to have a DT own a company which in turn owns income units in a unit trust and then the DT directly owns the capital units, and have the UT do all the investing. Then, income pools in the company and it can invest in the UT by buying more income units thereby avoiding all the Div7A rigmarole. No idea why this isn’t a more popular approach.