With the Trusts Bill currently before the Committee of the whole House in Parliament and likely to incorporate a raft of signalled changes, now is a good time to take stock and consider why you created your family trust in the first place.
Generally speaking, the main reasons to form a family trust are to resolve inheritance issues, gain greater protection from creditors or future relationship property issues.
If you can no longer see how your family trust is serving its core objective(s), it may be time to speak to your legal advisor about whether you should wind up your family trust (and distribute the trust capital out to the beneficiaries).
Although there are costs associated with the winding up process, you will be able to save on your trust’s ongoing administrative costs, which are likely to rise when the Trusts Bill is passed into law.
Do any of the following statements ring true for you?
- 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.
- You would like to cut down on the trust’s administrative costs.
Every situation is different
It is important to remember your situation is specific to you, and there is often no “right” answer. A family trust is still the best vehicle to transfer assets between generations, as it provides the greatest flexibility and control over timing. There is always a “cost vs risk” type of analysis that has to occur when deciding whether winding up is the best course of action for you.
Your legal adviser can talk about this with you, and help guide you through the process if you decide to go ahead winding up your trust. Please contact one of our experienced and friendly team and we’ll be happy to help.
This article was first published in November 2018 and revised in June 2019.
Our thanks to Heidi Mackey for writing this article.