Q. If I transfer my house into a family trust will I lose control of what happens to it?
A. Your family trust will be owned and managed by trustees who must act together in their decision-making. You can be a trustee of your own family trust. If you do become a trustee however, you should have at least one other independent of you. Ideally you would select additional trustees who you trust to make similar decisions about the trust property that you would. You would also typically retain the power to remove and appoint trustees, to ensure that you could continue to maintain effective control the trusts property.
Q. What does a trustee do?
A. A trustee must competently manage the trust fund and must not be undertaken lightly. Trustee’s are under fiduciary, or special, obligations to beneficiaries. Trustees are accountable to beneficiaries and are personally liable for their actions, subject to limited statutory protection. Generally, trustees act personally, however, if they do delegate any duties, the trustees must maintain oversight of actions undertaken and decisions made on their behalf.
Q. What does being an independent trustee mean?
A. An independent trustee is someone who is not a settlor or beneficiary of your family trust.
Q. Why should my family trust have an independent trustee?
A. It is vital that your trust is not a sham, is set up for proper purposes and is properly administered and managed. Having an independent trustee, particularly a skilled professional who has no other connection with your trust other than being a trustee, provides protection against your trust being viewed or administered as a sham.
Q. How do I decide who to have as an independent trustee?
A. An independent trustee should have certain characteristics, which apart from independence from the trust should include being a person that you get on with (all trustees decisions must be unanimous), be trustworthy and preferably have some experience in administering or managing trusts and the types of assets that the trust is likely to have in its trust fund.
Q. What is gifting?
A. When you transfer your home to the trust, you are effectively selling your property to the trust. The price of the property must be fair market value, so you should get your property valued when you transfer it. Instead of paying you cash for the equity value in the property when the transfer actually happens, you can have the trust acknowledge that the trust owes you a debt. This debt can
be forgiven in one lump sum at the time of sale, as there is no longer gift duty or reduced over time.
Q. How is gifting done?
A. When the debt is created, it is recorded in writing between you and the trustees. Each time that you make a gift to the trust, the gift and noting of the reduction of the original debt is also recorded in writing. If you have taken a mortgage over the home as security for the debt, you will record a variation of that mortgage reflecting the reduced security value each time a gift is made. The gifting process is repeated until the entire debt is eliminated.
Q. What changes have been made to residential care subsidies?
A. Eligibility for residential care subsidies are means tested, considering an applicant’s income and assets. Applications are declined if amounts are over prescribed thresholds. Assessment includes consideration of whether gifts have been made to family, friends or to a Trust. A recent case held that the $27,000 threshold was not for each spouse but rather that as the application looked at both spouses assets and income that the $27,000 threshold was for both spouses. The result was that as the historical gifting was greater than $27,000 that the application for the residential care subsidy was denied. It has become more complicated to become eligible for residential care subsidies. This is not considered to be a reason for establishing a Trust.
Q. Who can be beneficiaries of my trust?
A. Anyone can be a beneficiary of your trust. For most family trusts the primary beneficiaries will be those people that you really want to benefit from it. These people will usually be you, your spouse, your children, your parents, your brothers and sisters and any of their children and any of your grandchildren. You can include future (yet to be born) grandchildren as beneficiaries because a trust can continue on for 80 years. It is a good idea to think about who you would want to benefit from the trust well into the future.
Q. What property can I transfer into my trust?
A. A trust can have almost any type of asset. Usually major assets like the family home and investments (including shares, money or investment property) get transferred into family trusts. Assets that tend to decrease in value are not generally transferred because it can adversely affect your gifting programme. The assets must be valued at the date of the transfer and will become part of the
value of the gifting programme. You cannot devalue the outstanding amount of the debt to be gifted as the assets decrease in value. Not all of the property that the trust builds up has to be transferred from you. Once the trust is in a financial position to do so, the trustees can purchase assets directly for the trust.
Q. Can I change my trust later?
A. Your family trust will be created by a trust deed. The terms of the trust deed govern how the trust is managed. Often the trust deed will allow you to vary the trust deed, but it may not be as easy as you might think and it can be quite costly.
Q. Can I change trustees?
A. A family trust deed will usually allow for you (if you appoint yourself as having the power to do so) to be able to remove and appoint trustees. Any changes in trustees will have to be documented in accordance with the trust deed. As the trust assets are held in the personal names of the trustees, any property that has the trustees names on it (such as certificates of title) will have to be changed. Changing trustees can be time consuming and costly and so you should think carefully about selecting trustees.
Q. What kinds of trusts are there?
A. There are many different kinds of trusts some of which are set up for particular purposes. Commonly used trusts are family trusts, education trusts, charitable trusts, trading trusts and inheritance trusts. When identifying if a trust is right for your situation, you should think of what your goals in setting up a trust are and obtain advice on the best kind of trust to use.
Q. How long does a trust last for?
A. By law a family trust can last for 80 years although the trustees can wind it up earlier if the trust deed permits it, and they may choose to do so if there is no further purpose for the trust to remain in existence.
DISCLAIMER: The information provided in this document is not legal advice and is only intended to provide assistance and highlight matters that should concern trustees. The material in this publication is not intended to be and cannot not be relied on as legal advice or be used in the absence of on in preference to specialist independent and legal advice. Haven Accounting Trustees Limited and its related companies shall not be responsible to anyone for any claim, loss or damage whatsoever and without limitation in relation to the use or reliance by anyone of the information in this document.
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