A family trust is an estate-planning instrument that creates a legal relationship between various people. When a trust is established, a person (the founder) or people (the founders) donate money or assets to another person (a trustee) or people (trustees) to hold for the ultimate benefit of a different person (a beneficiary) or people (beneficiaries).
By this donation, and the creation of a trust deed, the founder or founders establish the trust. The trust deed sets out, among other things, the purpose of the trust, who the beneficiaries are, who the founders and trustees are, the functions, duties and powers of the trustees, and the procedures for removal and appointment of trustees.
Aside from providing income or assets for the named beneficiaries, there are several advantages of setting up a family trust. Some of the benefits include the following:
- Proper financial management of assets – You may be reluctant to give assets to your beneficiaries during your life or on death if you are unsure that they will be able to manage their financial affairs properly. Giving assets to a trust means that they will be managed by your trustees for the benefit of your beneficiaries. This can protect your family’s assets in the long term and after you are gone. Further, you may set out in the trust deed the conditions that must be fulfilled for the deed to be amended e.g. a majority written consensus by your trustees so that your trust deed cannot be changed on a whim or for the benefit of a single beneficiary.
- Providing for a minor or mentally disabled family member – If a family member will be unable to support themself when you are gone, your trustees will be able to care for this person in the way that you have instructed in the trust deed using the income and assets you have left for the benefit of your beneficiaries. Having a family trust in place will give you peace of mind that this will be taken care of.
- Income generation – Having income-generating assets in a trust ensures that your beneficiaries will have access to regular income while preserving valuable assets as investments for their future and that of their children. This can protect your family’s assets in the long term and after you are gone.
- Protection of assets from business or marriage claims – If assets are given directly to your beneficiaries in your will or during your lifetime, they will form part of the personal estates of those beneficiaries. A person’s estate is vulnerable to claims by creditors of the person or, in certain circumstances, their business. Further, if a person is married in community of property, half of their estate belongs to their spouse and is open to claims from the creditors of their spouse as well. Spouses. However, if assets are given to a trust, they will not form part of any beneficiary’s personal estate and will be protected from claims relating to a beneficiary’s business or marriage.
- Protecting beneficiaries of your estate – If your will is found to be invalid after you are gone, the people that you wish to benefit from your estate may not do so. Placing your assets in a family trust ensures that your chosen beneficiaries will receive the benefits intended for them even if your estate is intestate.
As discussed above, there are multiple advantages to setting up a family trust. When set up and managed correctly, a family trust can provide peace of mind to you and your loved ones throughout your life, when you are gone and for generations to come.
At Marsh Fidelity, one of our areas of expertise is the formation and management of trusts. Our team of experienced professionals can help you to ensure that your family trust is set up and managed correctly from the beginning, giving you peace of mind that your assets will be protected and your loved ones will be provided for now and in the future.