Trusts are commonly used to own family and / or business assets. The reasons for using trusts vary depending on circumstances. Reasons for settling trusts include:
- Assets owned by trust are not generally available to creditors as creditors can only access assets owned by a debtor personally. However, there are claw back provisions that can apply following bankruptcy or where transfers are made to a trust to defeat a creditor’s interests.
For asset and estate planning
- To protect different interests and expectations in blended families or where there are children with special needs.
- To ensure inter-generational asset transfers without the delays or challenges that can arise when assets pass pursuant to a will.
- To protect assets from spouses or partners following relationship breakdown
To appreciate why trusts are used, it is helpful to understand what a trust is. At the simplest level a trust arises where property is owned by a trustee (or trustees) for the benefit of the beneficiaries. A trustee can also be a beneficiary. However, to evidence a valid trust it is essential to be able to demonstrate the transfer from personal ownership to trustees on account of a trust. Where a trustee is also a beneficiary it is recommended that there is also a trustee who cannot benefit from the trust. This person is sometimes referred to as an independent or professional trustee.
The rules that apply to a trust and the trustees are provided for in the deed of trust that records the establishment of the trust. Appreciating the obligations inherent in the role of trustee is important as trustees act personally. This means a careful appreciation of what liabilities might be incurred and which of these can be met by the trust is essential.
If you have any questions about trusts please contact a member of the Ayres Legal team.