TRUSTS ACT 2019 – TRUSTS INTO THE FUTURE

With the Trusts Act 2019 changing the way trusts are managed and imposing obligations on trustees, some of which must be followed, it is a good opportunity for people to consider whether a trust is right for them, or whether the trust they have should continue on into the future.
Below are a number of important reasons why trusts still have their place.

Protection from Business Risk

If you have any form of business risk, a trust to hold assets that you want to keep separate from that risk is a sensible structure. Business risks can include;

  • Being sued by a customer or client if you are a sole trader in business;
  • A personal guarantee on a bank loan;
  • Occupational Health & Safety liabilities if you are a manager at a workplace or have control over others in any work environment;
  • Lease guarantees; and
  • General business creditor risk if your business isn’t successful.

Debt Structuring
A trust works very well where property investors wish to separate out their passive assets (i.e. the family home) from their investment assets and utilise different banks to separate out their mortgages into different bundles.

Separating Out Assets
Trusts are also useful for people in or anticipating starting a business to keep the major assets involved in their business, i.e. business premises, heavy-machine, motor vehicles, etc away from the direct risk of their business venture.

Estate Planning
In this day and age relatives making claims against deceased estates is becoming more prevalent, especially with property values being more expensive and the family unit taking on evolving forms with mixed and blended families. A well-structured trust can provide more certainty as to where your assets will end up after you are gone, rather than leaving them exposed to challenges to your will.

Relationship Property
Holding assets you have accumulated prior to a relationship (de-facto or marriage) in a trust is a great starting point in the process to protecting such assets from claims if there is a future separation. Accompanied with thoughtful trust maintenance and in conjunction with a well-considered contracting out agreement, a trust goes a long way to providing full protection in such circumstances.

Blended Families
The utilisation of trusts where there is a blended family situation, to ensure the interests of all family members are taken into account even if a parent is deceased, can prevent children being excluded from receiving an appropriate share of inheritances in the future.

Control into the Future
People who have concerns about how inheritances may be used in the future commonly use trusts to control wealth from beyond the grave. A trust is especially useful if a parent wishes to make sure assets are used in a specific way on their death if they have a child or dependant who needs special care or who cannot manage assets for themselves, or where there is a wayward member of the family who still needs the use of assets and money but who needs checks and balances in place to make sure assets are actually utilised wisely.

Looking after the kids
If you have children and want to make sure that assets they will inherit at some time in the future are not attacked by relationship property issues they may have with their partners, a trust puts in place a method by which assets can be kept out of the influence of those spouses and which allows the assets to be managed by the trustees in an orderly manner to avoid such claims.

The circumstances above are good examples of where trusts still have a useful place in peoples’ structures. Hopefully, your trust still serves a valuable purpose.

On a final note, however,  it is worth noting one instance where trusts may no longer have many benefits. This is important, because in the past this may have been a major reason for putting a trust in place….

Residential Care Subsidies/Rest Home Care
Unfortunately, a trust is unlikely to be useful to allow a person to claim the Residential Care Subsidy for old-aged care, especially where the only major asset they have is the family home. This has come about due to changes in the gifting rules and public policy of the Department of Social & Economic Development over the past decade. In reality, the only trusts that will be of much use in regards to the Subsidies are ones where the gifting programmes have been run at $27,000 per annum for an individual or $13,500 per annum for each partner in a marriage or de facto relationship, and the gifting programmes have already been completed or are very close to completion.