🏰 The Rockefeller Rule
There is an old adage among the ultra-wealthy: "Own nothing, but control everything."
If you hold a property in your personal name and face litigation (business failure, professional negligence, etc.), that asset is exposed. However, if a Discretionary Family Trust owns the property, and you merely act as the Appointor or Director of the Trustee, creditors often cannot seize it. This is the fortress strategy of the Discretionary Trust.
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| Why Rich Aussies Don't Own Assets. |
A Discretionary Family Trust is not a legal person; it is a relationship. A "Trustee" holds and manages assets for the benefit of "Beneficiaries" (your family members).
In Australia, this structure provides two formidable superpowers: Asset Protection and Tax Flexibility (Streaming).
Flexible Tax (Streaming)
Unlike a company or an individual, a Trust generally does not pay tax itself. Instead, it distributes the pre-tax profit to beneficiaries. The "discretionary" aspect means the Trustee decides who receives what amount each year.
🔀 Scenario: $100,000 Investment Profit
• Without Trust: You (Top Bracket Earner) take it all. Taxed at 47% (inc. Medicare) = $47,000 Tax.
• With Trust:
- Distribute $20k to Spouse (low income bracket).
- Distribute $20k to Adult Child at Uni (tax-free threshold).
- Distribute remainder to a "Bucket Company" (25% or 30% tax cap).
-> Result: Total tax could drop to ~$25,000. You preserved $22,000.
⚠️ Section 100A Warning: The ATO strictly monitors these arrangements. Distributions must be genuine; you cannot simply distribute money to a child on paper and then take the cash back for yourself ("Reimbursement Agreement").
Bulletproof Protection
If you operate a business, are a medical professional, or work in a high-liability field, your personal assets are at risk.
Assets held inside a properly structured Trust (ideally with a Corporate Trustee) are generally considered separate from your personal estate. If you declare personal bankruptcy, the Trust's assets usually survive because you do not own them.
*Note: The Family Court has broad powers to "look through" trusts and treat them as property of the marriage, unlike standard creditors.
The Catch: Trusts incur setup costs (~$2,000+) and annual accounting fees ($1,500+). Furthermore, if the Trust generates a Loss (Negative Gearing), that loss is "trapped" inside the trust. It cannot be distributed to offset your personal PAYG tax.
Chief Editor’s Verdict
Do not wait until you are served with a lawsuit to consider asset protection. By then, transferring assets is considered "clawback" and will be reversed.
If you are serious about building intergenerational wealth and protecting it from commercial risk, consult a specialist lawyer about establishing a "Family Castle" via a Trust structure.
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