Do I still need my Trust?

A builder had a trust for legal protection in case of being sued for his work.  At the time he set up the trust he also had a new partner and he was trying to keep his house separate from relationship property by setting up a trust.

Fast-forward many decades and he retired and was happily married to that partner.  They had completely merged all of their assets and she had been living in the trust’s house for decades.

He therefore decided to reassess whether he needed a trust.  After obtaining legal advice he realised he no longer needed it for creditor protection and that he would have lost the protection from a relationship property perspective many years ago given his wife lived in, and contributed to all outgoings in relation to, the trust’s house.

Changes to the Trusts Act that came into force in recent years have created more stringent obligations on trustees and caused many settlors of trusts to reassess whether they still need those trusts.

If you have a trust, it’s helpful to review the reasons why you set up a trust to start with and whether your trust is still relevant to your circumstances.

A trust is a legal structure that separates you from ownership of your assets. Any assets you place in a trust you no longer own.   A primary reason why you may want to separate ownership is to protect yourself from claimants against your assets.

The reasons people set up trusts are generally:

• Creditor protection for people in business. If you no longer own the assets personally, they will not be required to be sold if you are found liable for any debts run up by the business, provided the trust is run properly.
• Protection for children who may not be able to manage money;
• Estate planning reasons, particularly in blended or complex family situations;
• Relationship property reasons; and
• Historically, for rest home subsidy reasons.

Over the years, the laws around rest home subsidies and relationship property have changed dramatically. Many people may find the benefits they thought their trust would give them are no longer relevant. 

Equally, for many people who used to be a director of a company or own a business but are now retired, a trust is probably no longer needed for them and will instead add a layer of complexity to their estate planning.

It is important to weigh up the benefits of a trust against the ongoing administrative costs. If your trust is no longer serving its purpose as originally intended, it may be costing you more money (and time) than it is benefiting you.

It is also worth noting that while a Trust can be an effective way of protecting your assets, a Trust that is not administered well may not hold up in Court if someone made a claim against those assets. For this reason, it is important to ensure that you are willing to invest the time and money into your trust to ensure that it is administered well. This includes good record keeping, accurate accounts, holding annual meetings of trustees and potentially having an independent trustee.

If you do decide that your Trust may not be necessary anymore, it is important to consult a legal professional to ensure the wind-up process is completed correctly.

As part of winding up your trust your lawyer will consider the requirements under your trust deed and will need to transfer any assets held by the trust into the names of those who are beneficiaries of the trust.  This will likely be done as a ‘distribution’ to those beneficiaries.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.