Following on from Episode 23 on Multi-Phase solutions for Retirement we are joined today by Shaun Farrugia from Optimised Accounting & Finance to talk all things Trusts.

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In this episode we cover:

• The dummies guide to what exactly a Trust is
• How it can work as a funnel and the tax flexibility that it allows
• The two types of people that generally use Trust structures
• What are franking credits
• Three case studies of how Shaun clients are using Trust for tax flexibility

Case Studies as mentioned in this episode

Scenario 1: Couple approaching retirement / early retirement. (Dramatically reduce tax)

• Distribute investment / business income to a 'bucket company'
• Allows for tax to be paid at the company tax rate - accrues as franking credits
• Funds pile up and are invested within the company
• Upon 'retirement' dividends can be streamed out with franking credits attached
• Draw down $13,000 each financial year to remain below the tax free threshold with a tax refund of $5,572 - effectively a zero tax rate
• Draw down $26,000 each financial year and receive a refund of around $6,800 back - 11% tax rate.

Scenario 2: Young Couple - DINKS / Side Business (flexibility)

• Couple both working full time on incomes > $90,000
• Have a side business and investments
• Currently there isn't much of a tax benefit however couple is looking at having kids in the medium term
• Wife will take a year off work, and then in the 2nd year the husband will take a year working part-time
• Trust allows the couple to distribute the income from the side business and investments to whichever member of the couple has the lowest income at the time.

Scenario 3: High Income Earner with a property

• Client is on the highest tax bracket
• Purchased a rental property at the coast
• Client is looking for a tax-break whilst being able to achieve capital growth
• Wife is entrepreneurial and keen to run an AirBNB
• Client is time poor and not interested in having a bar of it
• Property is leased at proper market level rates to a family trust setup by the wife
• Client receives rent as normal
• Wife runs business
• Kicker is adult son in Uni - profit from the Air BNB is effectively tax free.

Links mentioned in this Episode

Optimised Accounting & Finance

Multi-Phase solution for Early Retirement