Family trust funds

Trusts are sometimes referred to as family trusts because they are often used to protect family wealth and assets. However, trusts don't have to be used for the benefit of family members – they simply offer a legally binding way to pass on your assets at a later date, either while you are still living or after you die.

Types of assets

A range of assets can be secured into a fund. An asset is defined as anything of value which someone owns, benefits from, or generates income. This may include:

  • Cash
  • Investments
  • Land
  • Property
  • Personal belongings such as antiques

Parties involved in a family trust

There are usually three groups of people involved in a family trust:

  • The settlor or donor who holds the initial asset and sets up the trust.
  • The trustees such as the original donor, family members and friends who will decide on how the trust is run according to the legal document of the trust known as the trust deeds or declaration of trust.
  • The beneficiary or beneficiaries who will eventually benefit from the trust fund.

Reasons for setting up a family trust fund

There are many reasons for setting up a family trust fund but primarily it gives both security and peace of mind to all parties involved. Circumstances may include:

  • A young individual inheriting a significant amount of assets may be unable to manage it correctly. A family trust fund would mean the trustees manage the account until the beneficiary is old enough, as stated in the trust's deeds, to do so for themselves.
  • An individual becoming incapacitated through an illness or accident may similarly not be able to manage their assets correctly. Again, the assets are placed into a trust and the trustees would manage it on their behalf.
  • A trust being set up to secure investments for a certain period of time. An example might be of a settlor locking away money in a trust for future university fees, a wedding or a birthday.
  • Estates are commonly passed down to beneficiaries through a family trust. This means that estates and income from rent may remain with one beneficiary for a certain period of time and then be passed onto another i.e. from settlor, to partner, to child, to sibling.
  • In some cases depositing assets into a family trust fund may reduce the impact of certain inheritance taxes.
  • Unlike the probate period involved in a will, assets in a family trust fund can be passed on to a beneficiary relatively quickly and inexpensively after the settlor's death.

Setting up a family trust can be complicated as there are many different types of trusts available. The trust's deeds must be written into a legally binding document and there are specific rules and regulations regarding tax on the money set aside for children or grandchildren. In many cases you will need to seek legal advice and tell the Tax Office when setting up a trust.

Next steps

If you’re not sure whether a trust is the right option for you, a financial adviser can help you to work out if a family trust is a viable financial option for you and guide you through the set up and management process.

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Last updated: 09 June 2015