Is your Family Trust still serving its purpose?

With the Trusts Bill currently in its Second Reading in Parliament and likely to incorporate a raft of signalled changes, it is probably a good time to take stock and consider why you settled your family trust in the first place.

Generally speaking, the core reasons for forming a Trust are the benefits that arise out of the following areas:

1.Inheritance Issues
2.Creditor Protection
3.Relationship Property

If you can no longer see how your Family Trust benefits from these core aspects, maybe it’s time to speak to your legal advisor about whether winding up your Family Trust (and distributing the trust capital out to the beneficiaries) is something to consider.

Although there are costs associated with the winding up process, you will be able to save on your Trust’s ongoing administrative costs. Furthermore, in light of the extra responsibilities signposted for independent trustees under the imminent Trusts Act, these administrative costs are likely to rise.

If you can no longer see how your Family Trust benefits from these core aspects, maybe it’s time to speak to your legal advisor about whether winding up your Family Trust (and distributing the trust capital out to the beneficiaries) is something to consider.

Andrew Neill — WRMK Lawyers

Perhaps some of the following statements ring true:

  • You are no longer in business and do not require the benefits of creditor protection;
  • Your accountant has advised there are no tax benefits from retaining the Trust;
  • Your children are grown up and are in stable relationships of their own;
  • You are comfortable leaving your assets via your estate (and are happy to ensure your Will is up to date);
  • You are comfortable that your estate will not be challenged and you intend to split your estate fairly amongst your spouse/de-facto partner and children;
  • You are concerned that by retaining your Family Trust (which holds modest assets) it may actually be preventing you from obtaining a residential care subsidy or residential care loan should you need assistance in the future; and
  • You would like to cut down on the Trust’s administrative costs.

It is important to remember that every situation is different and there is often no ‘right’ answer. There is always a ‘costs vs risks’ type of analysis that has to occur when deciding whether winding up is the best course of action for you.

A Family Trust is still the best vehicle to transfer assets between generations, as it provides the greatest flexibility and control over timing. However, despite this, whether your Family Trust is still fit for purpose is a discussion you should be having with your legal advisor.

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