What is a family trust and why would I want to set one up?
A family trust is a legal way to protect your assets for you and your family, now and in the future. Once set up, assets will be owned by the trust rather than by a person, and they are managed by trustees, such as a lawyer.
There are many reasons to set up a trust, including:
· to put money aside for a specific purpose;
· to manage the assets of a family member who is unable to manage their own finances;
· to prepare for the possibility that you will need residential care in the future (as the residential care subsidy is income and asset tested);
· to protect assets from relationship property claims.
Be aware that the transfer of assets to a trust can be challenged in court. For example, the court may rule that the transfer has been made solely to avoid your obligations to a spouse, and force the return of the assets from the trust. By appointing your lawyer to manage the trust instead, you can be forewarned of any future complications your transfer actions may incur.
A trust can protect family assets from relationship property claims.
Who is involved in the workings of a trust?
The settlor is the person (or people) who sets up the trust and whose assets are to be transferred to the trust.
The trustees are people appointed by the settlor, who are ‘trusted’ to manage the trust’s assets responsibly and in accordance with the trust deed. It is not uncommon for the trustees of a trust to include a mix of family members and independent professional advisors such as lawyers, accountants or a professional trustee organisation.
The beneficiaries are the people who receive the benefits of the assets held by the trust. For example, they might receive income from the trust, or have the use of trust property. The settlor can also be a beneficiary of the trust.
The trust deed is the legal document which states who the trustees and beneficiaries are and sets out how the trust will be managed and administered.
The settlor can also be a trustee. For example, a family trust set up by you might have as its trustees: you, your spouse and your lawyer; the beneficiaries might be: you, your spouse and your children. Any decisions the trustees make about the trust must be for the benefit of the beneficiaries.
It is possible for the same person to be a settlor, a trustee and a beneficiary of a trust – but they can’t be the sole beneficiary. The settlor can give themselves the right to remove a trustee or appoint a new one by including this provision in the trust deed.
If you set up a trust you will generally also need to review your will.
If you want to know if a family trust is a good idea for you, your children, and your children's children, contact one of our team today.