Estate planning isn’t just about writing a Will – it’s about making sure your assets are protected and managed in a way that truly reflects your wishes. One option that is sometimes overlooked, but can be very powerful, is a trust.
Understanding Trusts
A trust is a legal arrangement where a trustee manages assets for the benefit of those who are entitled to benefit from the trust (the beneficiaries). Put simply, it’s a way of placing your assets under the care of a trusted person or corporation, with clear instructions on how they should be managed and distributed.
A trust can be a useful estate planning tool when it comes to safeguarding and protecting assets for future generations.
A trust can be established during your lifetime or in your Will. For example, a family trust (also known as a “living trust” or “inter vivos trust”), generally a discretionary trust, is a trust which can be established during the lifetime of the settlor (the person who establishes the trust). On the other hand, a testamentary trust is a trust created in a Will that comes into existence after the death of the testator (the person making the Will).
Why Include a Family Trust in Your Estate Plan?
Family trusts can offer a number of advantages, including but not limited to:
- Faster Distribution and Privacy – assets held in a family trust do not go through Probate in NSW, which saves time and protects your family’s privacy as it allows a more private distribution of assets. This is because assets held in a trust do not form part of your estate.
- Continuity of management – if you become unable to manage your own affairs or in the event of your death, a family trust provides continuity of management of your assets. The trustee of the trust will ensure that the trust continues to be managed in accordance with the trust deed, which means that beneficiaries’ needs will continue to be met without any delay.
- Flexibility and protection – trusts can be tailored to suit family circumstances, provide for young or vulnerable beneficiaries, or protect assets for future generations.
Why Include a Testamentary Trust in Your Estate Plan?
Here are some of the reasons why you may consider a testamentary trust:
- Asset Protection – By establishing a testamentary trust in your Will, it allows you to set out terms of the testamentary trust in your Will and specify which assets will form part of the testamentary trust. Upon your death, the testamentary trust will come into effect. The trust will own the assets held within the trust, and the trustee will be responsible for distributing those to the beneficiaries of the trust. To achieve asset protection, it is important that a testamentary trust be drafted by an experienced Wills & Estates Lawyer.
- Tax Benefits – One of the financial advantages of a testamentary discretionary trust is that minor beneficiaries (under 18 years of age) are taxed at the normal marginal rates so that the first $18,200 of income paid to a minor beneficiary is tax free. This differs with the imposition of the maximum marginal rate of tax on income received by a minor beneficiary in normal circumstances.
How to Create a Family Trust
The process starts with preparing a trust deed—a legal document that sets out the rules: who the trustee is, who the beneficiaries are, and how the assets should be managed. Once that’s in place, assets are transferred into the trust so the trustee can begin managing them.
Choosing the right trustee is critical. This should be someone you trust implicitly—whether that’s a family member, close friend, or professional adviser—because they’ll be responsible for carrying out your wishes.
How to Create a Testamentary Trust
A testamentary trust is established by a Will, and the Will itself will serve as the trust deed. The trust only comes into effect after the testator’s death.
Things to Keep in Mind
Trusts are more complex (and usually more expensive) to set up and maintain than a Will, due to legal and administrative requirements. But the benefits can make them a worthwhile investment.
Because every family situation is unique, we recommend seeking tailored legal advice to decide whether a trust is right for you.