Family Trust: Managed Investment Scheme Explained

A family trust is a legally binding agreement that determines who will receive your assets after you die and how much they will receive. It is an estate planning product that can help protect your loved ones from additional costs or taxes in the future. On the other hand, a managed investment scheme is a type of investment where multiple investors contribute money and receive an interest in the scheme. The money is then pooled together and operated by a fund manager, with investors having no day-to-day control over the scheme. While a family trust can be a form of investment, it is not considered a managed investment scheme as it does not involve pooling money from multiple investors and is typically managed by a single trustee.

Family trusts cannot qualify as managed investment trusts (MITs)

Family trusts are an important estate planning product that can help you legally determine who will get your assets when you die, as well as how much they will get. They also protect your loved ones from incurring additional costs or taxes in the future. However, it is important to note that not all trusts qualify as managed investment trusts (MITs). Family trusts, discretionary trusts, and deceased estates cannot qualify as MITs, even if they hold passive investments.

A managed investment scheme, also known as a 'scheme' or 'pooled investment', involves multiple investors contributing money and getting an interest in the scheme. The money from different investors is pooled together, and a 'responsible entity', or fund manager, operates the scheme. Investors do not have day-to-day control over the operation of the scheme. Examples of managed investment schemes include cash management trusts, Australian equity (share) schemes, and agricultural schemes.

To qualify as an MIT, certain requirements must be met. Firstly, the trustee must be an Australian resident, or the central management and control of the trust must be in Australia. Secondly, the trust must not carry on or control an active trading business. For example, if the trust operates a takeaway shop, it does not qualify as an MIT. Lastly, the trust must be a managed investment scheme, widely held, and operated or managed by an entity with an Australian Financial Services Licence or a Crown entity.

Family trusts do not meet these requirements and, therefore, cannot qualify as MITs. It is important for individuals to understand the specific type of trust they operate to ensure they report their trust details correctly when lodging their tax returns.

Managed investment trusts include cash management trusts, share trusts, and growth trusts

Managed investment trusts, also known as pooled investments or schemes, are a type of trust where members collectively invest in passive income activities, such as shares, property or fixed-interest assets. Managed investment trusts include cash management trusts, share trusts, and growth trusts.

Cash management trusts are a type of managed investment trust where multiple investors contribute money and get an interest in the scheme. The money from different investors is pooled together and is often from hundreds or thousands of investors. A fund manager, or responsible entity, operates the scheme, and investors do not have day-to-day control over its operation.

Share trusts, or Australian equity (share) schemes, are another type of managed investment trust. These schemes are similar to cash management trusts in that they involve multiple investors pooling their money together. However, the focus of these schemes is on investing in shares or other equities.

Growth trusts are also a type of managed investment trust. While specific information on growth trusts is limited, they are likely to involve collective investment and pooling of funds, with investors earning an interest in the scheme.

Managed investment schemes are also called 'pooled investments'

A family trust is a trust that benefits the children, grandchildren, siblings, spouse, or other family members of the person establishing the trust (the grantor). It is a legally binding agreement to establish who will receive portions of the grantor's wealth after they pass away. Family trusts are common in estate planning to ensure certain beneficiaries receive assets when the grantor dies.

Managed investment schemes, on the other hand, are also called "schemes" or "pooled investments". They are a type of financial product regulated by the Corporations Act. In a managed investment scheme, multiple investors contribute money and, in return, get an interest in the scheme. The money from different investors is then pooled together, often from many hundreds or thousands of investors, or used in a common enterprise.

A unit trust is a very typical type of managed investment scheme. A unit trust brings together a group of investors who pool their money with the common enterprise of investing in a particular piece of real estate. Most of the unit holders do not have day-to-day control over the operation of the trust.

It is important to note that only certain trust types can qualify as managed investment trusts (MITs). Discretionary trusts, family trusts, and deceased estates cannot qualify as MITs, even if they hold passive investments. For a trust to qualify as an MIT, the following must apply for the whole income year:

• The trustee must be an Australian resident, or the central management and control of the trust must be in Australia.
• The trust can't carry on or control an active trading business.
• The trust must be a managed investment scheme, widely held, and operated or managed by an entity with an Australian Financial Services Licence, or a Crown entity.

Therefore, a family trust is not a managed investment scheme.

A family trust is a legally binding agreement to determine the distribution of wealth after death

A family trust is a legally binding agreement that determines the distribution of wealth after death. It is an estate planning product that can help you legally determine who will inherit your assets when you die, as well as how much they will receive. There are a variety of family trusts available, each catering to different needs and goals. They can also protect your loved ones from incurring additional costs or taxes in the future.

A family trust is typically established by a grantor, who is the person creating the trust and whose assets will be distributed according to its terms. The beneficiaries are the family members who will receive financial assets from the trust. A trustee is responsible for managing the assets on behalf of the beneficiaries. Family trusts can be revocable, meaning the grantor can alter the terms or cancel the trust, or irrevocable, meaning the grantor cannot modify the trust without the approval of everyone within it.

It is important to note that a family trust is different from a managed investment trust (MIT). An MIT is a type of trust where members collectively invest in passive income activities, such as shares, property, or fixed-interest assets. While a family trust can hold passive investments, it does not qualify as an MIT. Additionally, an MIT must be managed by an entity with an Australian Financial Services Licence or a Crown entity, which is not a requirement for a family trust.

When setting up a family trust, it is essential to seek professional advice to ensure compliance with legal and tax requirements. This includes identifying the beneficiaries and trustee, determining the distribution of assets, and transferring relevant assets into the trust. By establishing a family trust, individuals can ensure their assets are protected and distributed according to their wishes.

A family trust can be revocable or irrevocable

A family trust is a type of irrevocable trust, which means that it cannot be modified after it has been created without the beneficiaries' consent or court approval, or sometimes both. However, it is important to note that discretionary trusts, family trusts, and deceased estates cannot qualify as a managed investment trust (MIT), even if they hold passive investments.

A managed investment trust is a type of trust where members collectively invest in passive income activities, such as shares, property, or fixed-interest assets. For a trust to qualify as an MIT, the trustee must be an Australian resident, or the central management and control of the trust must be in Australia. Additionally, the trust must be a managed investment scheme, widely held, and operated or managed by an entity with an Australian Financial Services Licence, or a Crown entity.

On the other hand, a revocable trust, also known as a revocable living trust, is a trust that the grantor can change, amend, or revoke during their lifetime. This type of trust allows the grantor to maintain control of their assets while they are alive and efficiently distribute those assets after their passing. The grantor can change the terms and conditions of the trust, remove assets, or revoke the trust entirely. One of the main benefits of a revocable trust is that it avoids probate, which can be time-consuming and costly.

In summary, a family trust is a type of irrevocable trust that cannot be easily modified, while a revocable trust offers the grantor more flexibility and control over their assets.

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