A trust is a legal relationship where a person (called the “Settlor”) transfers the legal ownership of an asset to another party (called a “Trustee”) for the benefit of a third party (called “the Beneficiaries”). It is possible for the Settlor, the Trustee and the Beneficiary to be the same person.
About Trusts and Asset Protection
There are several reasons for establishing a Trust, these include:
- Succession planning – Having a Trust gives you flexibility as to how your assets are used for the benefit of current and future generations. The trust structure can also help to preserve and protect family wealth.
- Relationship property protection – putting your assets in a Trust can provide some level of protection of property from a relationship, however, this is often used in conjunction with a contracting out agreement in order to be fully effective.
- Creditor protection – if your assets are in a Trust, they are not personally owned by you. This means you can lessen your risk of potential creditor claims if you are in business. In the event your business cannot pay its debts, creditors could have access to your personal assets . If those assets are already held in a trust, then you could be protected. However, it is vital that the trust structure is in place well before any issues arise because there is a risk that a Trust structure will be ineffective if assets are transferred within a certain period of the business experiencing difficulties.
- Potential tax advantages – While the tax benefits for trusts have diminished over the years, there may still be some tax advantages in having a trust. For example, it is currentlyTpossible split income from the trust between beneficiaries who are in lower income tax brackets rather than paying the trust income tax rate of 33%.
- Providing for family members with special needs – family members with special medical needs or those who are not good with money can be assisted by the trust on an as-needed basis or if there is a clear need. This protects family wealth or assets from being misused.
- Eligibility for Residential Care Subsidy - It is possible to gift assets or money to a Trust to reduce the value of your assets being assessed to determine your eligibility for a Residential Care Subsidy; however, there are strict gifting limits in place and this needs to be considered carefully as part of your overall estate planning.
We have in-depth experience in creating, implementing and advising on trust structures to meet your personal and/or business requirements.
For more information or assistance about protecting your assets or how a trust could benefit you, please contact us.
Frequently Asked Questions
Family trusts have been around since Roman times. While there are endless reasons why people need to have a Trust, here are a few reasons that provide some benefits:
- Income tax
- Use of another entity
- Asset Protection
- Bargaining with Creditors
- Protection for Professional People
- Relationship Property Protection
A trust deed is a legal document and establishing one is a job for a lawyer. Your accountant and financial advisor may assist with establishing a trust, but a solicitor should do the actual trust formation and asset transfers.
Each trust is unique and will need to be customised on an individual basis. There have been many horror stories of people who have tried to create trusts themselves. Often, critical and important information is missing which could have a negative impact later.
While tax benefits for trusts have gradually diminished over the last twenty years, there are still some tax advantages by having a trust. For example a trust can income split and benefit from the lower tax rate of a beneficiary.
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