This is the second article in a series of eight about leaving family wealth to the next generation(s). The other Articles are entitled:
- Why you should make a Will
- Types of trust and who’s involved
- One trust or two?
- Trusts and passing on the family business
- Powers of Attorney and family wealth
- Trusts and Forced Heirship
- Protectors, the ups and downs
I am often asked why people create a trust to benefit themselves and/or future generations of their family. Not being a lawyer my view is based on over 35 years experience in professional practice, being a director of a number of trust and corporate service provider companies and being involved in the trial and tribulations of parents trying to do what they believe to be in their family’s best interest having regard to the circumstances particular to them.
Whilst I provide a list below of some of the reasons parents create family trusts, one of the driving factors, though not openly admitted, is that parents see the creation and funding of a trust which is managed by independent trustees as a way to deal with sibling rivalry and the continuous requests from their children for money and what can only be said to be the bullying/intimidation that sadly seems to be rising that can accompany it. The trustee in such circumstances could be said to be a surrogate parent, but one that does not have the umbilical cord connection.
So why should you consider setting up a trust for you and/or the family? This is something that only you can decide, but some of the more common reasons are:
- Trusts are flexible, varied and complex; depending upon the type of trust which is being used. It is often said “that a trust can do anything an individual can”.
- In using a trust you can leave your estate to your heirs in a way that is not directly and immediately payable to them upon your death. For example, you may want to stipulate that they receive their inheritance in three parts, or upon certain conditions being met, such as reaching a specific age, graduating from a university or getting married.
- You may want, on your demise, to support a surviving spouse but also ensure that the principal or remainder of your estate goes to your chosen heirs, e.g. your children from a first marriage, after your spouse dies. A trust is a perfect vehicle for giving effect to your wishes in this respect.
- A trust may be used to protect beneficiaries (for example, one’s children) against their own inability to handle (administer wisely) money.
- Providing funds via a trust to benefit a disabled relative, e.g. a child, whom you would like to provide for, does not necessarily disqualify the child from receiving government financial assistance.
- Trusts assist in keeping an individual’s personal affairs confidential from the general public and minimise the expense and delay in seeking probate of a Will.
- One can use a trust to create a pool of investments that can be managed by professional advisers.
- Trusts are an effective way of providing short and long term benefits to charity or charitable causes.
- A trust can be used to prevent assets gifted to children as being classified as matrimonial property.
- A family trust can help you protect your assets against future claims by creditors, spouses, de-facto partners, and challenges against your estate.
- Trusts often help aged parents deal with issues associated with providing benefits to different family members and sibling rivalry.
- Using a trust is a very good way of passing on the family business.
If you would like to know more about the points raised in this Article and what you may need to address in setting up a trust then please contact me or one of my colleagues at Fulcrum Limited