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Six Important Things To Think About When Setting Up A Family Trust

Family is the most sentimentally precious and priceless gifts you can ever be blessed with; they are the apple of your eyes and the centre of your universe. You would do anything to protect them and cater for all their needs.

It comes as no surprise that providing for your family securing their future is of significant importance to you. With a wealth of financial options currently available on the market, you are bound to spend sleepless nights trying to figure out the optimal solution to secure their future.

Setting up a family trust has become the preferred, and trusted option in ensuring your family is left in a sound financial footing should anything happen to you. The idea of establishing a family trust is for a particular family to benefit from the trust. Its primary purpose is protecting and managing the ownership of family assets for current and future generations.

Family trusts are suitable for a family that owns family-run businesses or any assets that generate regular income. The process of setting up a family trust and operating it is relatively simple, and each trustee pays their share towards tax contributions.

There is an even distribution of income among the members and the family trusted is well protected from being taken away should your family go bankrupt. Here is how a family trust in Australia works; legal ownership of the assets are transferred to the trustees, and they can continue to use and enjoy them as long as the trust deed permits.  

Benefits Of A Family Trust.

As mentioned before, the basic premise of a family trust in Australia is protecting your assets and also benefit the members of your family beyond your lifetime. When your assets are in a discretionary trust, you no longer have legal ownership of them. The trustees will own the assets for the benefit of your family members.

A discretionary trust set up may be useful for;

  • Protecting your selected assets against claims and creditors.
  • Putting aside money for special reasons, for example, your children or grandchildren’s education.
  • Ensuring your children, not their spouses, keep their inheritance.
  • Dealing with the risk of unwanted claims on your estate when you die.

Before you start the process of setting up a family trust, here are some things to consider;

  1. Who Will Be The Trustees?

A trustee or group of trustees hold a title to the family trust assets in Australia in their names and, subject to the trust deed, have the authority to deal with the assets as they deem fit. It is of crucial importance to choose trustworthy trustees who will optimally manage your family trust in Australia in a way that will provide maximum benefits to beneficiaries.

Additionally, a trustee should be mentally fit and be above 20 years of age. You can also make yourself a trustee and a beneficiary of your own family trust in Australia. Should you appoint yourself a trustee of your own trust, it is recommended that you select an independent trustee to shield your discretionary trust from being classified as a sham.

At least one person should be appointed in your trust deed to have the authority to appoint additional trustees and also remove them. You will have this power of appointment and removal when setting up the trust.

  1. Who Will Be The Beneficiaries?

You can appoint anyone to be a beneficiary of your family trust in Australia. When listing your beneficiaries, it is essential to note that discretionary beneficiaries have no automatic right to receive the benefits from the trust. They only right they are afforded is being considered by the trustees should the latter decide to make the benefits available.

Thus, the collection of beneficiaries you choose ought to be wide enough to include you want to benefit from the family trust. However, it should not be too large that the trustees have to consider a vast and different group.

  1. How Should You Structure The Trust Deed?

A trust deed is an important document you sign when setting up a family trust and its sole purpose is to record how the family trust in Australia has to be administered. The trust deed will have to flexible and also bears the reflection of the intention of setting up a trust.

It is not as simple as pressing the ‘backspace’ button when it comes to changing a signed trust deed. Therefore it is crucial that the trust deed is suitably prepared from the start. The name of the family trust in Australia is specified in the trust deed, and the chosen name should allow you to maintain the distinction between your personal affairs and the trust’s affairs.

The discretionary trust should be viewed as a crucial pillar of your estate and should be accompanied by;

  • A will that deals with your personal estate, including the debt owed to you by the trust.
  • A memorandum of wishes and enduring powers of attorney documents.

When setting up your family trust, you should draft a new will that deals with;

  • Your personal belongings.
  • Any debt owed to you by your family trust in Australia.
  • Your estate’s balance generally left to the trust and;
  • Your powers in appointing trustees and beneficiaries under the trust deed.

In the process of setting up your family trust, it is recommendable to remember a memorandum of wishes should accompany your trust deed. As mentioned earlier, the memorandum will detail your intentions for setting up a trust and will cover matters relating to;

  • How the trust assets should be dealt with by the trustees.
  • How the benefits should be made available to the beneficiaries.
  • How you want the family trust in Australia to be operated after your death.

A memorandum is not binding on trustees, and it will be optimal to sign enduring powers of attorney which will cover both your personal property and your personal care and welfare. It gives a third person the authority to act on your behalf, should you be out of the country or not mentally fit, in matters relating to your property and personal care and welfare.

The term ‘property’ is used in a broad sense to refer to your personal assets. It applies to any buildings and land you own including bank accounts, vehicles and other types of personal property.

  1. What Assets Should You Transfer To The New Trust?

The process of transferring your assets to your new family trust in Australia will commence soon after you have decided on the structure of the trust deed. Any asset can be moved to your family trust in Australia, but it is advisable to transfer assets with a probable chance of increasing in value.  

You will need to contact a taxation specialist and seek their advice on the effects of transferring an investment asset such as a rental property. After deciding on which asset you want to be transferred to your trust, you will need to decide if you will transfer them as a gift or by sale.

Before transferring your assets, several issues need to be considered;

  • If you will be solvent after you make the gift.
  • The broader taxation implications of making the gift.
  • The amount of direct access you will require to the asset you intend to transfer.
  • The effect the gift will incur on your potential eligibility for asset-tested benefits.

There are negative consequences with giving your assets to a trust and if so you ought to consider selling them to your family trust in Australia. The sale of these assets should occur at the current market value, and any transfer under the market value can be challenged by creditors resulting in the trust or sale being set aside.

A sale price can be recorded as a debt owed to you by your trust, should your discretionary trust not have adequate financial resources to purchase your resources. Thus, the debt will be your personal asset and will be made available to your personal creditors.

The only assets that are protected by the family trust in Australia under a sale agreement are;

  • The rise in the value of assets sold to your family trust in Australia over the original market value.
  • Gifts made to the trust.
  • Income earned by the discretionary trust no distributed to the beneficiaries.

You will need to ensure you will become insolvent from either giving or selling your assets to your family trust in Australia. As such, you will need to have adequate resources to pay your debts after transferring your assets. Your personal creditors will have the leverage to challenge any gift that leaves you insolvent, and the trust will offer little or no protection.

When you are ready to secure the future of your family and future generations, get in touch with Allan’s Off The Shelf.


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