Understanding trusts
Why use a trust?
Trusts are often used to protect assets from being at risk due to debts, business liabilities, relationship breakdowns, or to help arrange the distribution of assets to younger family members in the future.
How a trust works
Think of your trust like setting up a club. You are the committee and are required to manage the assets for the benefit of the club members. Your job as the committee is to keep the club documents up to date in case you get ’audited’ by the club members. Committee members also have performance duties they owe to their members and can be taken to task by those members if they act contrary to those. It is important the trust deed, like a club constitution, gives you the power to act the way you wish to manage the trust and you act within those parameters.
Trusts and wills should be wrapped up together
One of the most common misunderstandings when it comes to trusts is people treating the trust assets as their own and not realising what divesting their assets to the trust means, and how it impacts them.
For example, a person may stipulate in their will they wish their assets to go to their children yet most of their assets are in a trust. The assets in the trust cannot be given away under their will. They can only be distributed by the trustees and according to terms in the trust deed. Therefore, a trust should always be backed up by a will that works to compliment the trust as well as a memorandum of wishes.
In other words, ensure your will ties in with your trust and the entire package is wrapped up tight.