Family Trusts Explained

Setting up a family trust fund is one way of looking after assets whilst you are still alive or possibly after death.

Assets:

A range of assets can be secured into a fund. An asset is defined as anything of value which someone owns, benefit's from, or generates income. This may include:

• Money
• Investments
• Land
• Property
• Personal belongings such as antiques

Parties Involved In A Family Trust:

There usually three groups of people involved in a family trust:

1. The settlor or donor who holds the initial asset and sets up the trust.
2. The trustees such as the original donor, family members and friends who will decide on how the trust is run according to the legal document of the trust known as the trust deeds or declaration of trust.
3. The beneficiary or beneficiaries who will eventually benefit from the trust fund.

Circumstances In Which A Family Trust Fund is Set Up:

There are many reasons for setting up a family trust fund but primarily it gives security and peace of mind both to all parties involved. A family trust is usually set up for beneficiaries who are incapable of managing their own financial affairs.

Circumstances may include:

• Estates are commonly passed down to beneficiaries through a family trust. This means that estates and income from rent may remain with one beneficiary for a certain period of time and then be passed onto another i.e. from settlor, to partner, to child, to sibling.
• A young individual inheriting a significant amount of assets may be unable to manage it correctly. A family trust fund would mean the trustees manage the account until the beneficiary is old enough, as stated in the trust's deeds, to do so for themselves.
• An individual becoming incapacitated through an illness or accident may similarly not be able to manage their assets correctly. Again, the assets are placed into a trust and the trustees would manage it on their behalf.
• A trust being set up to secure investments for a certain period of time. An example might be of a settlor locking away money in a trust for future university fees, a wedding or a birthday.
• In some cases depositing assets into a family trust fund may avoid certain inheritance taxes.
• Unlike the probate period involved in a will, assets in a family trust fund can be passed on to a beneficiary relatively quickly and inexpensively after the settlor's death.

Setting up a family trust can be extremely complicated as their are many different types of family trusts available. The trust's deeds must be written up into a legally binding document and there are many specific rules and regulations regarding tax on the money set aside for children or grandchildren. In many cases you will need to seek legal advice and tell the Tax Office when setting up a trust.

Seeking advice from an independent financial advisor may help to work out if a family trust is a viable financial option for you and guide you through the set up and management process.

Additional information can be found on our family trust fund page.

 

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