A family trust is a discretionary trust that is set up to hold a family’s assets or conduct a family business. You may consider setting up a family trust for a number of reasons, but the usual reasons are to protect family assets or receive tax benefits associated with trusts.
A discretionary trust is where the beneficiaries of a trust do not have a fixed benefit – it is up to the trustee/s to decide what benefit they each receive.
Setting up a family trust deed
A family trust cannot be set up without a trust deed in place. This is a document drafted and signed by settlor and the trustee which sets out the terms and conditions that have been agreed to by all involved in the family trust.
A trustee is a person/persons who has the power to conduct the trust and manage the assets that are involved in the trust. They also are responsible for appointing the beneficiaries of the trust and how much they are to receive from the trust.
In regards to a family trust, the mother and father of the family are usually the trustees of the trust in the instance of being individual trustees. However, if they were conducting a family business, it would be the mother and father – being directors/major shareholders of the company.
A settlor is the person who executes the trust deed and provides the trust property to the trustees as per the terms and conditions set out in the family trust.
When is a family trust settled?
A trust is settled when the trust deed has been signed by the settlor and the trustee/s and has been duly executed by the Settlor. This means that the Settlor has provided the trustee/s with the property to be held in the trust.
The people named in the trust as people who can benefit from the assets held in trust are called beneficiaries. As it is a discretionary trust, they are not automatically given a benefit or an interest in the asset.
It is up to the trustee/s to decide when to distribute a benefit to the beneficiaries and how much is given to each.
In a family trust, this is usually the trustee/s dependent children but can also be siblings as well.
Before setting up a family trust, it is essential to get advice on the tax and legal implications.
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