Should I put the family home into a Trust?

What is a Family Trust?

A Family Trust is a mechanism for holding assets where property is put into the name of certain people “Trustees” (usually you) who hold the property for the benefit of someone else (the beneficiaries, which would usually include you). It is important to understand that although creating a separate asset holding mechanism, the Trust itself will not, unlike a company, have any legal existence separate from the Trustees. The Trustees are, for all intents and purposes, the Trust. The Trustees can only use and deal with the Trust assets for the benefit of the beneficiaries and cannot treat the assets as their own. Once established Trusts can only be altered in certain circumstances.  

Can I avoid inheritance tax?

Historically Family Trusts have been used to avoid Estate Duty (i.e. if the asset is owned by the Family Trust, it is not owned by the individual and it cannot be taxed when that person dies). Although this duty was abolished in 1992, there remains some uncertainty as to whether or not it will be reintroduced.  

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What are the main reasons for a Family Trust?

Creditor Protection Obviously if the assets are beneficially owned by somebody else, then notwithstanding they may legally be in your name as trustee they are (subject to some exceptions) safe from your creditors.  

Tax Savings Income earned by a Trust can be distributed to family members who are on lower tax rates.

Relationship Property Claim Protection Subject to Court Order, if the assets have been effectively transferred into a Family Trust they no longer belong to you and cannot as such be claimed by your life partner as Relationship Property and subject to splitting. This is a useful way of helping ensure that your assets are protected from claims by any future partners.  

Protect Your Children By putting your assets into Trust you are a long way towards protecting any children you may have against the danger that: 1. Half of any inheritance they may have otherwise have received from you, being claimed by an ex partner from any failed relationship they may be unfortunate enough to suffer in the future. 2. One of you dies, the other gets into a new relationship that: - Fails and leaves half of his or her wealth (i.e. your children’s inheritance) to the ex-relationship partner. - Produces more children with the result that again your children’s inheritance is reduced by virtue of now being spread over more children than just those produced by the two of you.

Planning Ahead A Trust can be used to arrange your affairs or assets in much the same way as people draft Wills or form Companies. It allows for the transfer of family wealth from one generation to another in a planned but flexible manner.  

Confidentiality In Contrast with Wills, the contents of which has become public knowledge, once Probate has been granted, the provisions of Family Trusts are kept confidential.

Flexibility A Trust can last over 80 years or even longer and it is difficult to forecast the needs of beneficiaries over such a long period of time. A discretionary Family Trust provides flexibility to cater for different beneficiaries needs at different times in their lives.

Protection against Family Protection Claims etc If your property is all held by a Trust, a life partner or child who has been deliberately excluded cannot challenge the provisions of a Trust after your death in the same way a Will can be challenged.  

Where to from here?

If you think that a Family Trust may be of interest to you and you would like to find out more please telephone the office to make an appointment time and we will be more than happy to discuss matters with you. 

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An effective Family Trust needs to be drafted by an experienced lawyer. Get in contact with our team today.