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Retirement

Why would a person want to set up a trust?

  • August 05 2021
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Retirement

Why would a person want to set up a trust?

By Zarah Mae Torrazo
August 05 2021

Why would a person want to set up a trust? We list down the reasons that may motivate you to call your attorney today. 

set up a trust

Why would a person want to set up a trust?

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  • August 05 2021
  • Share

Why would a person want to set up a trust? We list down the reasons that may motivate you to call your attorney today. 

set up a trust

It’s a well-documented fact that most Aussies are not that fully acquainted with estate planning. 

Research conducted by comparison site Compare the Market showed that 48 per cent of those surveyed do not have a will.

This finding is backed up by research form Maurice Blackburn Lawyers, which not only revealed that more than half of Australians do not have a will, but also that 40 per cent went on to indicate that they have no idea what would happen to their assets if they pass away without one

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On that note, it’s not surprising that estate plans usually do not establish a trust. While trust funds may seem to be a territory only for the wealthy, there are actually many advantages to creating one.

Trusts can help protect assets and property, make sure they are distributed after your death according to your wishes, and save your family money, time and paperwork.

Read on to learn a bit more about why you should establish a trust as part of your estate planning

What is a trust? 

A trust is set up via a legal document known as a trust deed, created to manage the assets entrusted by trustees for their beneficiaries.

The objectives and provisions within the trust agreement are legally binding,  as long as the trustee created the trust with a sound mind and body.

How and when beneficiaries will receive anything from the trust depends on the terms and conditions of the agreement, but trustees are always required to act on their behalf.

There are several different types of trusts in Australia. Some of these include: discretionary family trust, fixed trust, testamentary trust, special disability trust and superannuation proceeds trust, and so on. To learn more about their inner workings, here is our complete guide on the different types of trusts you can set up

Traditionally, the main purpose of a trust is to minimise taxes.  Assets in the trust that generate income – whether business or investments – can be given out to beneficiaries at a tax rate that applies to them, which may be at lower marginal rates.  

A major misconception about trusts is that it is very costly and complicated to establish. But setting up a trust in Australia is a pretty straightforward process.

You can establish one using a do-it-yourself online service for a small service fee of around $150. You will also need to pay the stamp duty mandated by your state or territory. If the trust you are looking to set up is slightly more complicated in nature and will need the active management of a corporate trustee, the costs can start at around $1, 200. 

Why should you set up a trust?

While we’ve mentioned that a trust is usually established for tax purposes, there are other reasons why it could be beneficial to you and your loved ones. Among them:

Avoiding probate 

Avoiding probate is often cited as a main reason for establishing a trust. By not going through this tedious (and often expensive) process, beneficiaries can save both time and money. 

If your assets and property are to be distributed according to your will, the probate process  is needed to determine that an individual’s will is actually the valid and last will of the person in question.

Before the estate can be distributed, it can take several months for the people in charge of the estate to obtain a Grant of Probate allowing them to access the money and assets of the person who passed away. 

Even for a simple estate, it takes an average of three to six months for funds to be distributed after probate has been granted.For more complex estates, it can take even longer.

A trust bypasses this process and allows your beneficiaries access to the assets and property more quickly.

Protecting and managing your estate

Another main use of a trust is to protect your property even after it becomes part of someone else’s estate. 

A trust gives you a guarantee that your accumulated wealth, supplemented by any life insurance payments, will be passed onto younger generations of the family  in a controlled way that will provide the most benefit for the recipients. 

For example, you are planning to leave a huge amount of money to a family member, such as your son or daughter. However, you’re concerned that he/she will spend the money in a shorter amount of time than you expected.

You can specify in the terms of your trust that the money will be only given to your child as you see fit. You can arrange for a specific sum to be given each year for some time, then a final lump sum can be given once they reach a certain age when you think they have matured enough to have a better handle on finances.

Sufficient funds for educational purposes

A trust will allow money to be available for your children, grandchildren or even those of non-relatives for educational purposes, including tuition fees and living expenses.

Trust funds offer flexibility on how and when the money will be given out or used for educational expenses. Usually, a  family trust may specify that each child’s full tuition and college expenses will be paid, with any remaining amount to be split among all children. For example, one child may be provided with enough money to get a doctor degree, while one may just be given a sufficient amount to get a bachelor’s degree. 

An individual who sets up a trust can also choose to give each child the same amount of money, no matter the cost of their education. 

Benefiting charities and organisations 

If you are looking to help out charities or other organisations with advocacies that align with your moral compass, you can choose to set up a charitable trust. 

A grantor can transfer assets such as money, real estate or art to a charitable trust, and designate that they eventually be given to a specific organisation or charity. 

For example, a surviving spouse with no children or immediate family he/she can leave their money and assets to whom they can leave their estate to may choose to support a variety of charitable organisations in the event of their death. Regular payments or a lump amount can be disbursed to the charity for a certain time, depending on what is stipulated on the trust. 

 In another scenario, a grantor can choose to give payouts to a charity institution while they are still alive. Donations are qualified as tax deductible, so in addition to having a benevolent cause, it can also help with taxes. In the event of a grantor’s death, all the amount may be redirected to their remaining family members. 

Avoiding family disputes

You may have heard countless horror stories of families disputing over estates. By setting up a trust, you can ensure that a family feud can be averted when you pass away. 

Trusts can minimise the possibility of conflict between beneficiaries (usually family members) when an estate is being settled. Trusts offer more control than wills in complex family situations, such as when leaving assets to a married beneficiary.  Because trust funds are highly customizable, grantors can lay out specific instructions that he/she deems appropriate for a named beneficiary. 

A trust is also particularly in managing unique assets that are not easily divisible, such as a pet, vacation home, commercial real estate, antique collection, sentimental items, etc., which tends to trigger unwanted disputes between family members. 

Why would a person want to set up a trust?
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