Creating a family Trust is a route to establishing generational wealth.
It can do this by offering tax benefits and ensuring a family’s wealth is only used for suitable purposes.
What is a Family Trust?
It is a legal entity set up by an individual, or a ‘settlor’, to allow beneficiaries to benefit from funds. The beneficiary does not have to be the funds’ legal owner.
A trustee is then selected to manage the trust on behalf of the beneficiaries.
“A trust allows funds to continue to be protected should a Settlor become unable to manage their own affairs and even beyond a Settlor’s death,” said Peter Skelly, Senior Manager at ZEDRA, a wealth management company.
“If you are considering creating a family Trust, it can feel like a daunting task. The options available can seem overwhelming in terms of understanding what benefits a family Trust provides, what you should – and shouldn’t – put in the Trust, deciding who should be your Beneficiaries, and choosing your Trustees.”
“Trusts can be complicated structures with complex tax implications, so it’s important to seek expert advice if you’re considering setting one up,” Skelly added.
How Does a Trust Work?
With funds you do not need, you can gift them into the care of your trustees.
These funds are held specifically for the benefit of your selected beneficiaries. Typically this is children, grandchildren and future generations. The trustee is responsible for ensuring that the funds are invested and paid out according to the stipulations dictated.
“The Trustees will be steered by the Letter of Wishes you leave to them, which provides guidance to them on your overall goals and desires for the funds, as well as the circumstances of the Beneficiaries over the term of the Trust fund. They can then use their discretion to provide assistance at sensible times,” says Skelly.
“For example, when the time comes for the purchase of a first car or deposit on a first home, your family Trust will be there to assist and provide the support your loved ones need at crucial times.”
How to Create a Trust
A trust is created by a legal document called a trust deed. This sets out the terms on which your selected trustees must act and provides the basis on which they can use the funds for your beneficiaries in the future.
“Before creating your family Trust, you should carefully consider the Terms of the Trust Deed, choose your Trustees, and decide which assets you can afford to gift into it.”