ASSET PLANNING - FAMILY TRUSTS
Many people set up a family trust to protect their assets. The usual reasons are:
to pass assets from one generation to the next; also a means of controlling spendthrift ways of children or grandchildren — locks in capital but allows access to income
to protect personal assets if you are self employed — can give protection from creditors by ring-fencing personal assets from claim
to ensure that your assets are preserved even if you have to go into a rest home (rest home subsidy entitlement)
to make it more difficult for your child’s spouse or partner to claim a share of his or her inheritance
to minimise (not eliminate) Relationship Property Claims
to manage assets for a handicapped child
You will need to appoint trustees to look after the assets of the trust. We prefer a conservative approach for this, and recommend that you have at least one independent trustee (i.e. a person who is not a beneficiary of the trust). You should have at least two trustees, so that there can be continuity – if one dies, the survivor or you (if you are the appointor) can appoint a new trustee as a replacement. The beneficiaries are usually discretionary, and will include yourself; your spouse or partner; your children and grandchildren; perhaps other relatives particularly if your family is small and there is a possibility that you could all be killed in an accident; and possibly charitable organisations.
A trust can be set up to last for 80 years, but in practice many trusts will be wound up and distributed to children when the parents, who set up the trust, have died. A trust can run a business and own income producing investments, in which case you will probably need an accountant to make sure that everything is done correctly. However, many trusts just own the house in which the person who has set up the trust resides.
Companies that meet certain criteria can act as trustees, but we suggest you read our comments on this before deciding whether to engage one of the authorised entities as a trustee.