Is a trust still relevant for me?
There has been lots of publicity around the Trusts Act 2019 which is now in force. One of the key talking points is how to manage the expectation of beneficiaries given the presumption that trustees will make trust information available. We are finding that this is causing many people with trusts to take a long-view and ask some fundamental questions, namely “is the trust still relevant for me?”
A ‘hardening of the rules’ brought about by the new legislation is seeing some people who have settled trusts grappling with the implications of having lost direct control of their assets. Having a trust means the needs and rights of all the beneficiaries to benefit from trust property must to be considered regularly. These rules have been given statutory force by the creation of mandatory and default trustee duties which apply to all trustees and is something not seen in previous legislation.
Other talking points, particularly for trusts created by older settlors, are that trusts now offer less assistance in regard to a residential care subsidy application. This was a reason many trusts were settled in the past. Changing government social policies mean that the state expects beneficiaries to self-fund their care, in some cases even where gifting has been completed. Rising property values have also seen a reduction in the effectiveness and therefore use of life interests, which were a common estate planning tool. The value of a life interest would be calculated and then subtracted from the registered value of the property being transferred to the trust, then the debt back to the settlors would be steadily gifted each year. Abolishment of the gift duty in 2011 has also had an effect and meant assets could be gifted to a trust outright.
Many trusts are being wound up and the assets distributed to the beneficiaries. Potential tax issues must be canvassed before proceeding with winding up a trust (or resettling a trust), particularly where there is depreciation recovery, taxation of gains for revenue account property or property subject to Brightline Rules, and loss of tax losses or imputation credits in the case of a trust owning trading company shares.
Trusts work best when set up for the right reasons with the intention of holding assets for the medium to long term, often for the benefit of successive generations. Annual trustee meetings are important as an ongoing review mechanism. Trusts will remain an integral asset planning tool and are here to stay. Lawyers are now looking to the courts to provide much needed interpretation in some areas of the Act and this will also be useful for trustees going forward.
Please contact our trust expert, Samuel Ames if you require assistance.
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