Family Trusts – Why you should hold an annual trustee meeting and what does that mean?
It is likely that at the time you set up your Family Trust, the lawyer…
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What is a trust?
Although a trust is typically assigned a name and often treated as if it were a separate entity, similar to a company, it is not actually a distinct legal entity. It is created by a trust deed, often involving multiple parties. A trust is managed by trustees who have a responsibility to deal with and look after the trust assets for the benefit of the trust beneficiaries. A trust can hold assets and liabilities in the same way that natural people or a company can and, once assets are transferred to a trust they become trust property which needs to be managed accordingly.
What is Involved in a Trust?
Trusts involve three parties:
- A settlor, who provides money or other assets to be held
- The trustees who take charge of the trust property and administer them in accordance with the Trust Deed and the Trusts Act 2019.
- The beneficiaries who receive income or capital based on the trustees’ decisions
Settlors and their spouses are often trustees, but it is advantageous to have a third party, perhaps a professional advisor or a family member. In some cases, a trustee company may be appointed as an independent trustee.
Transferring assets to a trust is comparable to selling the assets to a third party – the exception is that, in most cases, no actual money changes hands; instead a debt is created as between the vendor and the family trust.
The ideal assets to hold in a trust are those of a permanent nature, such as land and buildings, publicly listed company shares, or fixed term deposits. These assets are likely to grow in value and generate income for the trust. Settlors often include their own home as a Trust Property, but this should not be an automatic settlement as problems can arise if the Trust Deed is structured incorrectly.
Why You Should Consider Trusts?
Although not an exhaustive list, you may benefit from a Trust if you fit within these categories:
1. In business as a sole trader or self employed by your own incorporated company
- you can use the Trust to assist with protecting your personal assets from creditors should the business suffer financially
- we work in with your accountant to ensure the Trust formation and transfer of assets to the Trust is completed in accordance with best practice
2. In a new relationship and with assets that you have taken into that relationship that you wish to protect
- A Trust, paired with a Contracting Out Agreement, can help with this protection
- This allows you to ensure your assets are protected for your own children in the event of the relationship failing
- Assets in a Trust are less likely to be considered part of the relationship property pool if the relationship does not last
3. Considering estate planning during your lifetime for the advantage of you and your family
- Vulnerable or less than trustworthy children could have their inheritance left to them in a Family Trust so the Trustees can manage that asset for them and ensure it is used wisely
- A Funeral Trust to set aside money to pay funeral expenses immediately and/or to have up to $10,000.00 exempt from asset testing for a Residential Care Subsidy Loan
4. Concerned about protection of an inheritance from your child’s partner/spouse
- To minimise the risk of your child’s inheritance being halved with their partner if that relationship dissolves, you can leave their inheritance to them in a Family Trust, rather than to your children personally
5. Setting money aside for a specific purpose (e.g. children’s education)
