You may ask yourself – do I need a Trust?
A Trust is not necessary for everyone and whether you should establish a Trust will be highly dependent upon your personal circumstances, the purpose for the Trust and the ongoing effort and costs involved in administering a Trust.
There are several benefits associated with Trust establishment and settling assets within a Trust structure, including (but not limited to):
- Creditor protection,
- Protecting your assets from future relationship property claims,
- Estate and succession planning,
- Long term holding of assets and succession planning,
- Income allocation and tax flexibility, and
- Protecting vulnerable person(s), for example managing assets and ensuring the financial well-being of individuals who are unable to handle their own affairs due to age or disability.
There are different roles which people undertake within a Trust.
In establishing a Trust, you should consider who you might involve in the administration of the Trust and who you would like for the Trust to benefit.
There are three key categories of persons involved in a Trust structure:
- The Settlor – This is the person who creates the trust by transferring property into the trust initially or at later times.
When property is transferred into the trust, it is no longer held by the settlor personally, but held by the trustees for the benefit of the beneficiaries. If you establish a Trust and settle your property into it, you will be the Settlor of the Trust. - The Trustee(s) – The person(s) who becomes the owner of the property transferred to the trust (subject to the specified purposes of the trust) and whose name(s) appears on the documents of title or ownership.
- The Beneficiary(ies) – The person(s) who benefit from the trust relationship by receiving income and/or capital during the term of the trust or upon final distribution of the trust assets.
In practice, the trustees of a Trust hold assets on behalf of the Settlor for the benefit of the beneficiaries.
To transfer the assets into the trust, the settlor either sells or gifts such assets at market value to the trustees.
Trusts can operate for a limited period of time and a maximum life of Trust is 125 years. Most trusts enable the trustees to terminate the trust at any earlier date they so determine.
Building a Strong and Compliant Trust
KEY CONSIDERATIONS
- The terms of the trust are specified in the trust deed – the document establishing the Trust arrangement. The trust deed should be designed to achieve the desired purpose of the trust. The trust deed is the foundation to the whole trust arrangement. It is crucial that this is robust and legally compliant.
- The settlor of the trust can provide extra guidance and direction to the trustees of the Trust during settlor’s lifetime. When the settlor is unable to provide direction due to incapacity or death, the trustees may rely on the written settlor’s directions to trustees, which are commonly known as a memorandum of wishes. The memorandum of wishes ensures that the Settlor’s vision is continued past their lifetime.
- If you wish to establish a Trust and transfer the assets into it, you must be aware that if you are also a trustee, your involvement does not end there. It is important for trustees to administer the trust and deal with the trust assets in line with the Trust legislation and the purpose of the Trust. Read more about this here.
- Independent Trustee – An independent trustee is an impartial trustee who does not benefit from the trust’s assets. It can be either a family friend, or a person from professional field, such as an accountant or a lawyer. A professional independent trustee provides additional benefits of guidance and robustness to your Trust. You can read more about this here.
Your personal circumstances may change over time. It is a good idea to review your Trust and other asset planning documents to ensure they remain relevant and continue to reflect your wishes.
The Trust Law & Wealth Protection Team are here to help with all the legal aspects of establishing a trust.