The perception of a Trust varies between people but a proper understanding of its meaning, constitution, practice and execution is important to avoid disputes and problems later.
Trusts are established and managed to protect people’s assets.
If you are your own trustee, as most people will chose to be, you will be able to do anything with your assets, including buying, selling, assigning and so on. You will also have the authority to change or even dissolve the Trust.
Trustees must follow the instructions contained in them; they are legally liable.
You decide when your loved ones will receive their inheritance, or make periodic distribution. Assets in your trust are protected against irresponsible spending, creditors, and disputes, including divorce proceedings.
A Trust lets you keep full control over your assets while you are living, if you become incapacitated. After death, its provisions will apply.
The cost factor
The cost of settling up a Trust would vary, depending on the experience and expertise of a lawyer.
A well-drafted Trust would cost more than a Will.
But the true costs of a Will should include the costs of probate and estate distribution after death. There may be some conveyancing costs involved in transferring your assets to your trust when you set it up.
There may also be similar costs associated with properly transferring assets when a Will is used as the primary estate planning document.
Properly transferring assets is essential to either a well drafted Trust or a well drafted Will estate plan.
When you compare the total costs of both plans, a Trust-centred plan will usually be less in the long run.
Many people go through probate and hence the Trust may appear to be waste of money.
If your Trust is properly prepared and the assets are properly transferred, your assets will not go through probate.
There are only two reasons as to why your assets would go through probate: 1. You did not transfer all your assets into you Trust 2. Your Trust was not properly prepared (you need a Lawyer who specialises in trusts to do that).
Some myths cleared
Trusts are for wealthy people only: Trusts have been around for hundreds of years, and were used for a long time mostly by the wealthy who needed special tax planning.
In recent years, however, the benefits of a Trust for estates of all sizes have become better known. Everyone can benefit in some way from having their assets and in particular a family home in a Trust.
Upon your death, your assets would go to the Government if they are in a Trust:
This is totally incorrect. Your assets will remain in the Trust for the benefit of its beneficiaries and it is being up to the Trustees at the time to decide if the Trust should be dissolved or the assets resettled into a new Trust.
Properly drafted Trusts will ensure that even if all all the members of your immediate family pass away before you, your assets can then be distributed to your distant relatives or a charitable organisation if you wish to do so.
There is no need for an Independent Professional Trustee: It is possible to set up a Trust without an Independent trustee.
However, most lawyers who specialise in Trusts will protect the interests of their clients and ensure that the Trusts are not ‘Sham Trusts.’
A qualified and experienced lawyer will ensure that the Trust is established in terms of the laws in force and that it does not run the risk of being declared invalid.
Farah Khan is Partner & Notary Public Practice Manager at Khan & Associates Lawyers and Notary Public based in Papatoetoe, Auckland. She can be contacted on (09) 2789361. Facebook: Farahkhanlawyer.