A Financial Services Partners Adviser can help assess how a trust can help you protect what is important. They can work with your legal adviser and accountant, where appropriate, to ensure the trust meets your needs and objectives.

What is a trust?

A trust fund is a fund whose assets are managed by a trustee or board of trustees for the benefit of another party or parties. Restrictions on the type of investments that a trustee may invest in are usually found in the trust deed. The trust deed is the document that defines the relationship between the trustee and the beneficiaries.

Trusts can be used for a variety of reasons. We will look at two common kinds of trusts - a testamentary trust and a discretionary family trust.

What is a testamentary trust?

A testamentary trust is established under a will. It does not come into effect until the death of the person making the will. The trustee holds assets on behalf of the beneficiaries. The operation rules are outlined in a trust deed.

What kinds of goals can a testamentary trust be used for?

Some benefits of a testamentary trust include:

  • distributions to children under age 18 are taxed at adult tax rates rather than the child penalty rates
  • assets are protected for minors who are not yet capable of making good financial decisions
  • assets may be protected for beneficiaries who become bankrupt or divorced
  • assets might be protected to beneficiaries who work in high risk professions
  • assistance can be provided to beneficiaries with special needs who may require another person to provide financial management (for example, spendthrift beneficiary or beneficiaries with a disability).

When writing instructions in your will, you need to consider who will take on the roles of:

  • The trustee - who is responsible for the daily running of the trust and decides who will receive distributions.
  • The appointer - who has the authority to remove the trustee and appoint a replacement.

The trust will incur setup and maintenance fees. You need to consider the potential costs and weigh this up against the benefits received.

You may also consider setting up more than one testamentary trust via your will. This allows you to direct specific assets to provide for a particular group of beneficiaries. For example, if you have two sons who are both married with children you could decide to set up two testamentary trusts in your will so that each son has his own trust for his own family. While this may increase the costs, but the benefit may outweigh the cost.

What is a discretionary family trust?

A discretionary family trust is a trust arrangement where the beneficiaries are generally family members. The trustee holds assets on behalf of the beneficiaries. The operation rules are outlined in a trust deed.

The trustee can decide which beneficiaries will receive a distribution of income and/or capital from the trust. This can change each year.

What kind of goals can a discretionary family trust be used for?

This discretionary family trust is suitable for people who:

  • are seeking asset protection (for example, small business owners or professionals)
  • have family members who are not able to manage finances (for example, drug or gambling addictions)
  • have family members with intellectual disabilities
  • are concerned about the financial impacts of divorce for family members
  • have sufficient assets to make the strategy financially viable.

Your Financial Services Partners Adviser can determine if a trust is right for you, after they consider your needs and objectives. They can also determine which other wealth protection strategies can best meet your needs.

Talk to us about how a trust might work for you

If you are ready to see how trusts can work for you, we can match you with a suitable Financial Services Partners Adviser who will be happy to begin working with you to create a financial plan that's right for you.

To get started, please use our adviser matching service.

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