Do you wish to explore setting up a family trust?
Contact expert family trust lawyer, Peter Smith today.
6 March, 2012 | Peter Smith
Moving assets into a trust means the ownership of those assets is no longer in the name the individual or individuals (although as trustees they still may retain an element of control of the assets). Therefore, the assets do not form part of the personal asset base of the individual concerned in the event of insolvency, relationship property claims or when administrating or making claims upon deceased estates.
Along with protecting your assets from creditors, trusts also serve as a vehicle to protect your assets from relationship partners who would normally be entitled to make claims under the Property (Relationships) Act 1976. If a de facto partner or spouse makes a claim against you, the assets that are owned by a family trust may not be classified as relationship property as they are owned by the trust, not you.
Moving your personal assets to a trust means the assets do not form part of your deceased estate.
We have all heard at one time or another of executors administering a deceased person’s estate and complaining about what seems to be an unnecessarily long time to have probate granted and to complete administration of the estate.
Even in a relatively straight forward case, an estate may genuinely require a year to eighteen months to finalise due to the stringent legal requirements designed to prevent wrongful dealing with a deceased person’s assets.
Having the larger part of your assets belong to a family trust may avoid the need to obtain probate at all (given the estate is too small to require it). At the very least any probate and administration required will affect only a small part of the overall assets of your estate and not unduly inconvenience the persons you wish to provide for.
Many of us are surprised to learn that arrangements we make in our Will to provide for certain loved ones after our death are able to be challenged and/or set aside by the Courts in at least two common situations.
Firstly, a child, grandchild or spouse (including an estranged spouse whom the deceased has not divorced) can bring a claim under the Family Protection Act 1955 if they feel that the deceased has not fulfilled their moral duty to provide for them, notwithstanding any genuine or heartfelt reasons the deceased may have had for deciding not to do so.
Secondly, the Law Reform (Testamentary Promises) Act 1949 allows for any person to bring a claim for provision who claims to have been made a promise that they will be provided for in ones Will in return for services of some kind. This law is often invoked by children who have cared for parents, other carers or companions, but anyone who fulfils the criteria can bring such a claim.
Although there are good reasons why Parliament has enacted these laws, what you may think of as quite reasonable estate arrangements are subject to challenge.
Moving assets into a trust means those assets will not fall into your estate. The decisions regarding the assets are to be made by the trustees of the trust. These assets are not subject to challenge under either the Family Protection Act 1955 or the Law Reform (Testamentary Promises) Act 1949.
Transferring the assets to a trust during your lifetime enables you to make decisions regarding whom you wish to pass assets to with much greater certainty and with less chance for those decisions to be subject to challenges.
Therefore, a trust is a way of achieving the same thing that you may wish to do so by Will but is much less vulnerable to legal challenge by disgruntled parties.
If you run your own business, whether as a sole trader, in partnership or by means of a limited liability company, you can benefit from moving personal assets to a trust in case of a later business failure.Moving personal assets to a trust may mean those assets become immune from claims by creditors even in the event that you are adjudicated bankrupt or your company is put into liquidation.
It is important you understand the limitations of family trusts, the conditions in which you are legally able to gift assets and the correct way to administer your family trust in order to ensure asset protection.