What is a Trust and Why You Should Use It.
The structure “Trust” is the most misunderstood structure in today’s age. Most commonly, the general public may think it is mainly used by “wealthy” families. We have a different opinion – we believe it should be used by most people, particularly for those who truly want to get ahead by investing for the future.
Today, we look forward to dissecting a Family Trust, (the most common form, and formally termed discretionary Trust) providing summary of its main aspects, along with its uses and benefits.
It is worth noting that a Trust is controlled, not owned. Generally, trusts are controlled by individuals or companies. There are four primary roles within a Family Trust – Settlor, Appointor, Trustee and Beneficiaries.
Settlor – the one who initiates the Trust's establishment. An unrelated party is usually sought to act as this role, and cannot benefit from the Trust’s post-establishment.
Appointor – the ultimate controller who holds the power to dismiss and appoint new Trustee. In in case of disputes, the Appointor must act promptly to remove the Trustee to prevent potential harm.
Trustee – the one entrusted with holding holding Trust assets and managing its day-to-day affairs, assuming associated responsibilities and liabilities.
Beneficiaries – Individuals, and other potential entities like Trusts and companies who stand to benefit from the Family Trust.
Down below, we have outlined the main purposes of a Trust and how it can be used to benefit your family for generations to come.
Tax Minimisation
Integrating a Trust into one's business and wealth framework primarily aims to minimise tax obligations. They provide flexibility, allowing income to be distributed (at discretion) to beneficiaries such as family members, other Trusts, or companies. This flexibility ensures different types of income is taxed in the most advantageous manner.
Protection of Assets
Trusts offer valuable asset protection by segregating asset ownership (largely due to having a Corporate Trustee) and wealth from potential financial and legal threats. This segregation shields assets held within the Trust structure from personal liabilities, creating a barrier against creditors' claims. While asset protection strategies are not infallible, Trusts aid in constructing barriers over time to mitigate financial risks.
Planning for Succession
There is a long list of the how’s and why’s but in short – Trusts provide more flexibility and certainty in succession planning, making it more challenging for disgruntled family members to contest asset distribution compared to a Will.
In conclusion, Trusts should be considered by most taxpayers. While the structure can be highly complex, it also could really get you ahead in the “rat race”. Please consult us on how we are able to assist.
Disclaimer: The information contained in this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs and where appropriate seek professional advice. Taxation, legal and other matters referred on this website are of general nature only, and are based on interpretation of laws existing at the time and should be not relied upon in place of appropriate professional advice. Those laws may change from time to time.