Many doctors have set up family trusts to manage their income and wealth. Is it time for you to set up a trust for you, your family and your practice? Learn more from medical accounting specialist Kym Nitschke.
[Before you read on … Nitschke Nancarrow has recently launched DocWealth, a wealth, accounting and financial planning firm exclusively for doctors and medical practice owners. Get free resources, podcasts and insights here.]
How can a trust help a doctor like you?
A trust is a way to control where your money eventually ends up no matter what life throws at you. The ultimate goal is to channel your income to those you want to benefit from it. The trust can protect funds from misuse and liability. Doctors often choose to set up a trust so that they can ensure a steady stream of income from their practice directly to their families. As the owner of the funds, you would be the trustee of the trust.
Trusts – Income for the Physician’s Family
As a medical professional, you’re constantly on your feet. Even when you sit down to talk with and examine patients you still wear yourself out trying to make time for everything you need to do and everyone you need to see. The more you work, the more you earn. But there’s only so much you can do in one day.
That’s why you have a clinical platform in place. This is a system comprising of everything else you need to keep you in the business of treating patients. These are the support services that keep your practice running.
Your clinical platform probably includes:
– Diagnostic equipment
– Medical supplies
– Software for bookkeeping, scheduling, patient records and medical imaging
– Computer hardware
– Cleaning services for your practice
– Rent and utilities
– Extra services and products to attract new patients
– Marketing and advertising fees
In short, there is a large part of your business dedicated to generating income outside of what you can charge for services you personally render to your patients. This means that your patients are paying for more than just your time and expertise. A large portion of their bills go toward supporting your clinic platform and growing your business.
Technically-speaking, then, you have income on two fronts: one from what you personally generate by treating people and another from your clinic platform. Setting up a trust can help you to better manage the income from that business-aspect of your practice. With a trust you can directly stream the profits from your business directly to your family as income in their name.
Why is this significant?
Income you earn as a doctor can be reported in your name only. That’s because it’s considered “personal services income.” It’s money earned strictly through the efforts of one person and one person alone. Your income is taxed, accordingly.
A trust, however, acts like a separate business of its own and the resulting profits are taxed a bit differently. The resulting income can be reported as earned by someone else in your family.
Another crucial aspect of trusts is that they protect your business income in the event of a lawsuit. As a medical professional, you may be at a higher risk for liability than many other professionals. Your assets and family’s income will have greater protection than if the funds stayed in your name.
Should You Set Up a Trust?
Using a trust to channel and protect your income isn’t vastly different from just setting up a company or having your family buy shares in your business. It’s just a different another option to achieve a similar means. Setting up a trust, however, can have farther-reaching and long-lasting benefits in comparison with other methods. You just have to be prepared to go through a lot of paperwork and pay some fees.
The trust requires annual fees to operate since it functions like a separate business. Its funds supply you with the services your clinical platform needs to operate and you pay it for its help. The profits it generates are what go to your family members or other beneficiaries you nominate in the trust.
Done correctly and for the right reasons, setting up a trust is a logical way to ensure a steady stream of income to support your family. A famous perk of trusts is that the income distributed to beneficiaries of the trust is taxed at a lower rate than the income you personally earn.
Does this mean you should set up a trust just to take advantage of this tax benefit? No. The ATO is pretty strict about the reasons you can set up a trust. In another blog we’ll talk more in-depth about how trusts can’t be used as a loophole for avoiding tax.
Seek professional advice from your expert medical accountant and lawyer before you attempt to set up a trust.
Nitschke Nancarrow specialise in accounting and financial planning for doctors and medical specialists.
– Kym Nitschke
With guidance from our friends at Andreyev Lawyers.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation. Contact us now for a no obligations discussion about your needs.Tags: medical accountant, Tax, trust