Estate Planning as a Career

The Basics of Family Trusts – A Closer Look at Family Trust Funds

January 24th, 2010 Filed under: Executor Fees,Trusts attorney,ab trust,sample wills — Estate Planning Author

“Put your assets into Trust Funds,” this is a common advice that we hear from a lot of people. Some say that Trusts have a lot of advantages while some say that Trusts are only for wealthy people and so on. As a matter of fact, there are a lot of misconceptions with regards to Trusts. While many people give out advice to invest in Trusts, a few only bother to explain what a Trust Fund is.

Picture this: A ship is traveling through the sea. The Captain and his subordinates are in charge of the ship and its passengers. It is their duty to read the map, steer the wheel, and look out after everybody in order to reach the harbor successfully. Now, think of the ship as the Trust Fund, the Captain and his subordinates as the trustees and the passengers as the beneficiaries.

Based on the sample given above, we can say that it is certainly more than a device, a concept or a ship. Family Trust Funds is like a group of relationships where the creator of the Trust, also known as the Settler has relationship with other people that they place to run the Trust for them. People who do the task of running the Trust are called the Trustees. These trustees have a relationship with the Beneficiaries or people who have the Trust set up for them.

If you come to think of it, a Trust is like a chain where the settler puts their faith and money in the Trustees to run the trust. The Beneficiaries put their trust in the Trustees to watch out for asset of the Trust and to act fairly serving the interest of all parties involved. Legally, a Trust is composed of equitable responsibilities with Trustees that owe obligation to watch out after a certain property that they have control so that the Beneficiary can benefit from it.

Length of a Trust

The question now is, when will all these relationships end?

There are two ways to end a Trust. First is to wait for 80 years after the Trust has been set up. This is in accordance with the law. Another way to end a Trust is by “early vesting”. Simply bring the end date of the Trust forward. Take note that the Trustee has responsibility the moment they are still in contract at their jobs. The moment they quit, retire or resign their responsibilities to the Trust ends as well.

Reason for getting a Trust

Different people have different reason as to why they acquired Trust Funds. Below are 4 motivational reasons as to why getting a Trust is important.

1.To protect assets against creditors and other parties that may pull it out. People who set up Trusts for protection purposes need to be very particular of documents. Check if there is a presence of Hawkins and Entrenchment clause in the transfer documents. Lack of the two clauses may mean trouble in the future.

2.Minimize Taxes. Nobody wants to pay more taxes. One way to lessen your tax burden is by setting up a trust. A well established Trust that suits you and your needs can help lower the taxes that you pay for. Remember to ask for an advice from a specialist as they know what suits you best.

3.Test assets. This is for people who want to have nothing but control. Putting your asset on Trusts will make you asset poor. You can pass government subsidy test with flying colors because the moment you are tested, you have no assets.

4.Provision for the future. Most of the time, a family gets assets and may want to secure it future generation. A beach front property that a couple bought is worth setting up a Trust so that their children and their children’s children can experience the feel of living in the beach front property the couple bought.

John Rowe is working with Gilligan Rowe & Associates are Chartered Accountants and are specialist Accountants and experts in property and family trusts.