Should I have a Trust?
The media seems to portray trusts as vehicles for the super-rich, money launderers and tax dodgers. But, while they are sometimes misused, just as companies and other commercial structures are, trusts are a well-established and legitimate structure.
What is a it?
A trust is an arrangement whereby a person (the settlor) transfers money or assets (the trust property) to one or more other people (the trustees) to manage for the benefit of others (the beneficiaries). The settlor no longer legally owns the trust property.
The person creating the trust will be the settlor and may also be a trustee and a beneficiary.
A trust protects your assets or wealth. When you transfer assets into a trust, they are no longer in your legal ownership so are not exposed to your personal risks.
Reasons to have one
- To protect your assets from potential legal problems. If you are sued and found liable, your own assets are fair game for your creditor, but trust property, which may include your family home, is safe.
- To control who benefits from your assets after you die. If you have children, your assets will typically pass directly into their ownership. If your child is in a relationship, those assets will likely become part of their relationship property, entitling their partner to half on a break-up. A trust can hold the assets so your child benefits from them without them becoming part of their relationship property.
- To prevent your assets being included in your wealth for means-assessed benefits such as a residential care subsidy.
- To keep your asset ownership private. Trust property is in the trustee names, not your name, making it harder for the public to see what you do and don’t own.
- To enable distributions of income and/or capital to beneficiaries at the discretion of the trustees.
Avoiding tax is not a reason to have a trust. Contrary to some impressions, your income will be taxed whether in a trust or not. A trust does, however, provide the most flexible means of distributing taxable income among different beneficiaries.
- You no longer own the assets. If you are a trustee, you are legally an owner, but only in your capacity as a trustee. The ownership is on behalf of the beneficiaries and you cannot treat the assets as your personal property. You can mitigate this loss of control by:
being a trustee,
retaining the power to appoint who the trustees are, and/or
instilling your wishes in the trust deed or a memorandum of wishes.
- A trust requires administration. Decisions must be made by all trustees, considering the needs of all beneficiaries, and resolutions recorded. A trust may require financial statements and a tax return.
- There are costs. A trust can be setup for around $1,200 upwards and there may be ongoing annual fees such as tax return preparation and professional trustee fees.
Can a Court Just Overturn my Trust?
Only if the trust is a sham.
If you already have a legal problem, and setup a trust to put assets out of reach, a court may deem the assets to still be yours.
If you do not include other trustees in decisions, and treat the trust assets as if they are still yours, a court may deem that no trust in effect exists.
If you have a trust, you must treat it as such.
So, is it Worth Having one?
If you are personally involved in any risky commercial endeavours, or have significant assets to protect, then a trust will likely provide your best protection and the benefits should outweigh the costs.
Trust law is complex and always evolving through changing legislation and court decisions. Make sure you get some professional advice before forming one.
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