There are a number of circumstances under which you may consider forming a trust. Some of the common reasons for establishing a trust, and the structures utilised, will be discussed in this article.
A trust is managed by trustees who are appointed by the creator of the trust (called the settlor(s)). Trustees manage the assets and debts of the trust for the beneficiaries specified by the settlor(s).
There are several different types of trust structures that may be used. Your circumstances will determine which structure is most appropriate for you. Some types of trusts include:
Single/Umbrella Trust – all assets are transferred to one trust;
Parallel/Mirror Trust – each settlor (for example a husband and wife or de facto partners) transfers assets to separate trusts for which they each hold governing powers;
Fixed Purpose Trust - provides for a specific purpose, such as the welfare of a child with special needs, for education, or for charitable purposes.
Given that a trust may continue after your death (up to a maximum of 80 years), it is often seen as having certain advantages over having wills which deal with your assets and debts.
One purpose of a trust can be to provide for future generations. You may have a family that you wish to provide for into the future. A trust allows you to ensure any children, grandchildren or any other person you so wish, may be provided with some benefit from the assets transferred to the trust on the basis, for example, reaching a certain age, or attending a certain academic institute. It may also provide protection against property claims including the interests of your children against claims by their future partners.
Another purpose of a trust can be to protect your assets from any liability you may have as a Director of a company, in providing a guarantee or security for the company. If you are considering forming or purchasing a company, then transferring your personal assets to a trust may guard them from any possible future problems with creditors.
It is important to keep in mind that your primary purpose for establishing a trust must not be to transfer assets in order to defeat creditors, such as spouse’s/partner’s claims, avoid asset or means testing in respect of Residential Care Subsidy Applications or to avoid or reduce your tax liabilities.. However, as noted above, there are benefits that flow from having your assets held under a trust, and establishing a trust is very much to be considered on a case by case basis taking into consideration all your personal circumstances.