Do you need a Family Trust?

Family Trusts may be created for a whole variety of reasons. Primarily however, in recent times, they have been created for the purposes of protection of assets. Trusts can provide protection for personal assets in the following cases:

  • Protection of assets from creditors.
  • Protection of assets in the case of marital or relationship break ups.
  • Protection of assets against claims to property after death.
  • Protection of assets in relation to costs of aged care.

1. Creditors

Assets transferred to a Family Trust cease to be personally owned and in the event of the transferor’s subsequent insolvency will not be available to their creditors. However there are provisions in the Insolvency Act and the Property Law Act which, in certain circumstances, will enable creditors access to Trust assets and legal advice is essential when transferring personal assets to a family trust.

2. Marital or Relationship Break Ups

Assets transferred to a Trust prior to a relationship commencing are generally not “relationship property” for the purposes of the equal division provisions of the Property (Relationships) Act 1976. Transfers to a Trust after a relationship has commenced which are intended to or have the effect of defeating a spouse or partner’s interest in or claim to that property are invalid.

3. Claims to Your Property After You Have Died

A Will can be challenged by a disgruntled child or relative. A Trust cannot. By transferring all their major assets to a Trust a person may dictate the disposition of their assets among chosen beneficiaries after their death without the risk of claims being brought by anyone whom may have been excluded.

4. Costs of Aged Care

Eligibility for a residential care subsidy for the costs of aged care is determined according to the personal assets of the applicant(s). Assets owned by a Trust are excluded for the purposes of determining eligibility. However gifts made to a Trust within 5 years of applying for a subsidy are included in the calculation of the applicant’s assets, as are “excess gifts” - gifts exceeding $27,000.00 per annum - made more than 5 years prior.

Peter McLeod