Fitting family trusts into an SMSF scenario

The growth in self-managed super fund (SMSF) establishments is raising questions around the traditional role of discretionary family trusts, according to Peter Townsend, managing director of Townsends Business & Corporate Lawyers.

Indeed, as business owners have looked for the best vehicles to hold assets, operate a business and hopefully protect both from creditors, Townsend said that, discretionary trusts operating above a company structure was for some time the "only game in town".

"Discretionary family trusts are still the preferred vehicle for business owners - farmers, small business owners etc," said Townsend.

"(And) family trusts offer a flexibility not available to SMSFs in what can be owned and operated inside the trust.

"Family trusts (also) allow for annual distribution of earnings to the trust member on the lowest tax rate, or whatever suits the trust's needs in that year."

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However, Townsend said that there was also no reason why family trusts and SMSFs could not work together.

"Both trusts and SMSFs assist in protecting assets from creditors in many circumstances," he said.

"Business real property can be placed in the SMSF and leased to the member's related business."

According to Townsend, it may even be possible to devise a strategy whereby certain parts of a business are owned by family trust, and others assets by the SMSF, to maximise advantages.