PLEASE NOTE: This article was published on the date listed below and may now contain information that has since been updated or changed. We have retained this article as it may still contain helpful comments. However, we advise you to make an appointment to see us for the most up to date information on this topic.
Family Trusts - What Are They?
Trusts are usually created by a document called a trust deed. A person who wants to ensure that property will be protected and be available for the use and benefit of others, transfers that property to people called trustees who hold and use it for the purposes specified in the trust deed. The trustees then ensure that the property is managed and available to the people named to benefit from it (beneficiaries).
The parties to a trust have names that are unfamiliar to most and by describing their rights, duties and powers this will go a long way to helping in the understanding of trusts.
The person who initially transfers property to the trust and determines the way that property (trust fund) is dealt with by setting out the rules in the trust deed.
The legal owners of the trust fund and the people who exercise the management and control of that fund. The trustees must however use the assets for the purposes the settlor specifies in the trust deed.
The person or persons who have the power to appoint and remove trustees. This is usually the settlor or a person appointed by the settlor either by deed or will.
These are the people for whose benefit the trust has been created. There are usually two groups of beneficiaries:-
(a) Discretionary Beneficiaries
These beneficiaries have the right to be considered for payments from the trust fund but have no automatic right to receive such payments. Usually this group includes the settlor, spouse, children and grandchildren. However parents, siblings, spouses of children and charities may on occasion also be discretionary beneficiaries.
(b) Final Beneficiaries
These beneficiaries have the right to the assets of the trust on the date that the trust ends or is wound up. They are normally the settlor’s children or grandchildren.
Trusts are a complex structure and require considerable thought and attention to detail. Always take advice from your legal professional if considering forming a trust, as it can be a costly and time consuming exercise to alter or unravel a trust later if things do not turn out the way originally planned.