Why should you think about a family trust? Basically, a Trust is a bit like an insurance policy; it works to protect you from possible claims against your property. Potential claims could come from a wide range of people. For example, future de facto partners who decide to leave after a few years could make a claim; creditors of your business might try to claim against your home and other assets; and the government can also make claims against your property – such as claiming for rest home fees.
How does a family trust work? In simple terms, you form a family trust by transferring your property to someone else – someone you trust called a “trustee” – who then has the legal ownership but they sign a document – called a Trust Deed – agreeing that you and your family keep the benefit of the property. So if a creditor comes after your home and it’s owned by your trustee, you can say to the creditor “I don’t own that home, someone else does, so you can’t touch it” – even though you and your family continue to live in the home.
A common question that comes from this scenario is “But what happens if I don’t like what the trustee is doing with our Family Trust?” There are a number of ways to guard against this risk and a common safeguard is to record in the Trust Deed that you have the ability to fire the trustee and appoint a replacement.
If you’re thinking about trusts, it’s best to get advice sooner rather than later. They can be a bit like Wills or Powers of Attorney, often people think about them but only after it’s too late and the horse has bolted. For example, there are certain time limits around transferring a property to a trust that could affect whether the transfer is deemed to be legally effective or not.
Finally, there are a number of technical issues that are associated with trusts and if you’re thinking of forming a family trust, you should talk with professionals who have experience in this area. Our approach is that we never set up a family trust for a client without consulting closely with their accountant or other financial adviser.