There has been a great deal of discussion recently as to whether or not family trusts are still relevant in today's legal climate. Some commentators have suggested that the impending Trusts Act, which is currently being enacted, and changes to the way applications for residential care subsidies (rest home fees) are administered, affect the usefulness of trusts.
Family trusts are still relevant today and have benefits that cannot (easily) be achieved otherwise. It is important to be aware that family trusts work because, provided that they are formed and administered properly, a family trust is effectively a separate legal entity and the assets owned by the trustees of the family trust are not the assets of an individual or couple. This has a number of advantages.
Asset protection - the ownership of assets by a trust, that would otherwise be an individual's or family assets, protects those assets against (for example) creditors of an individual. If you are engaged in an occupation that has the possibility of you being sued (for example architects, builders, plasterers, ship captains, etc) or are a company director and/or are running a business in which you are personally providing guarantees, then having your assets in a family trust is recommended.
Income sharing - in the event that you have a family in which the earnings of various family members fluctuate or are disparate (for example a couple with one high income earner and one low or no income earner, or alternatively a family with children over the age of 16 years who are presently not earning), then the ownership of investment assets in a family trust can enable the transfer of income to those on the lower incomes. This also has the incidental advantage of resulting in savings in income tax in many cases.
Protection against family protection claims - ownership of assets in a family trust, particularly when the family trust is formed and assets transferred before a relationship starts, can assist the retention of those assets in the event of a relationship breakup.
Your children - holding assets in a family trust can be advantageous to your children on your death. It is possible to ensure that funds that would otherwise be inherited by children remain in trust for their benefit thereby reducing the possibility of some of your family assets being lost in the event that one of your children goes through a relationship breakup. Furthermore, and in the event that you have a child or children that you suspect is unlikely to be able to responsibly look after inheritances, then protections can be put in place utilising a family trust to ensure that the funds are protected for them and their children after your demise. In addition, if you wish, it is possible to provide for unequal distributions to your children without fear that your decisions may be challenged legally in the future.
Government agencies support and benefits - however, if you consider forming a family trust for the sole purpose of assisting in future claims for government subsidies, such as residential care subsidies, then a family trust will be unlikely to assist, and in certain cases could be detrimental. Government departments have tightened up the rules for such benefits and subsidies over the years and, in certain cases, have made retrospective decisions which have resulted in assets owned by family trusts being effectively added to an individual's own assets when the assessment of applications is conducted.
Family trusts are still, and will remain, an excellent vehicle for the retention of assets and the spreading of income provided your family circumstances warrant it. If you wish to discuss the pros and cons of forming a family trust, or wish to examine whether or not an existing family trust is still beneficial for you and your family, then contact our Trusts Team.