Trusts are fast becoming a prudent means of protecting property and administering assets. A trust is established when an individual, known as the settlor, transfers assets and possessions to people referred to as trustees. Trustees are mandated by law to use the assets for reasons that the settlor has instructed. Typically one of these reasons is to award payments from the trust asset to people referred to as beneficiaries. This article looks at one specific type of trust known as family trust.
What's the importance of having a family trust?
It is important o make sure that particular assets, for example a family farm or estate property, are transferred in one piece to the next generation. This ensures that the kids are not left in poverty when the settlor passes on.
In the event that an individual is unable to run their own affairs, because of ailment or age, they can put their assets in the hands of trustees who will be responsible for managing the assets on his or her behalf.
Before transferring your assets to a family trust, it is important to consult a property lawyer. They can help you stipulate in a legally binding document who the parties involved in the trust relationship are and how the trust assets will be dealt with by the trustees, bearing in mind the interest of the recipients.
Who are the parties in a family trust?
The settlor
Any individual who transfers properties to the trustees of the trust is known as the settlor.
Trustees
A family trust typically has at least two or more trustees. Trustees are individuals whom the settlor is convinced will administer the transferred assets prudently. Do note that the settlor may opt to be a trustee of their own trust. It is recommended that you appoint a trustee whom you have no blood relations with, such as a property lawyer or a corporate trustee in order to instill a sense of professionalism in how the trust will be managed.
The beneficiaries
These are individuals for whose advantage the trust has been created or set up. Beneficiaries can be classified into two categories namely,
- Discretionary beneficiaries
- Final beneficiaries
Discretionary beneficiaries are often the settlor's children, grandchildren or a charity organization. They have the right to be deliberated upon by the trustees for compensation from the trust asset; however, they don't have an automatic privilege to obtain payments from the trust.
Final beneficiaries enjoy the legal right to the trust assets once the trust finishes. They are normally named in the trust deed and are typically the settlor's children. Do note that a trust cannot last forever, and the trust deed must specify a date on which the trust comes to an end. This is referred to as the date of distribution.
In conclusion, trusts are subject to a host of legal requirements. A property lawyer can help you understand and satisfy all the requirements when setting up a family trust. For more information, contact a firm such as David Gibbs & Associates.
Share