Has your family trust passed its use by date? After all, there have been some big ones challenged through the courts where everything has fallen apart. You might be thinking that it’s not worth the hassle any more.
The problem isn’t that your family trust don’t work. More likely is that your family trust is misused, misunderstood and not properly maintained. Trusts have been around for hundreds of years because they offer protection that can’t be achieved through any other structure.
It is important to know why you would set up a family trust in the first place.
Trusts are particularly useful for;
Ensuring inheritance is passed onto your children, not their partners
Protecting assets from a future partner/spouse
Protecting assets from a former partner/spouse
Protecting the family home from the potential failure of a business venture
Making special provision for someone who is incapacitated or unable to manage their own affairs
When looking to protect your assets in a relationship, it is wise to seek advice from an expert lawyer, as you will potentially benefit from arranging relationship property agreements too.
For a Trust to work effectively, it is crucial everyone involved understands their role and responsibility.
Settlor – the person/s or company that creates the trust.
Trustees – the people who manage the trust. The Settlor can also be trustee. It is good practice to appoint an independent trustee like a lawyer, accountant or a professional trustee company.
Beneficiaries – the people who benefit from the assets of the trust.
One of the most common reasons trusts fail is a lack of discipline, for example:
No annual meetings
No recorded minutes or record of decisions
Mixing of personal assets with Trust assets
Spouses acting as sole trustees
A lack of understanding of the Trust deed
Making a memorandum of wishes is a good idea to ensure that the trustees understand how the trust is to be managed once you have gone. It is like a Will for your trust. The memorandum might state who the funds are to go to and when. A clear memorandum of wishes helps everyone to know what you want to happen, including your children.
If you are still wondering if your family trust is relevant seek some professional advice to discuss it objectively and sort through and resolve why you set it up and how to operate it going forward. There is also a cost in dismantling a Trust.