Background

A trust is simply a vehicle in which one can manage their assets and their estate, whether that be for tax advantages or to provide financial support for a beneficiary.

It is viewed as a relationship that is enforced by the courts, in which a trustee holds the assets on behalf of the beneficiaries. A will has many similarities, however requires the process to follow through the probate court to divide the assets to beneficiaries. The beneficiaries in a trust however are spared of this process, of which provides an efficient way to pass down the estate privately. This can save them excessive court fees and estate taxes.

Types of Trusts

Next to understand are the different types of trusts. The types differ in characteristics and alter how and when the assets are distributed to the beneficiaries. The most common ones used include a fixed, unit and discretionary.

Fixed: The trustee does not have the discretion over the division of assets, as the beneficiaries already are entitled to a fixed proportion of the estate or income of the trust.

Unit: Similar to a fixed trust, the beneficiaries are entitled to a proportion of the estate through their specific amount of units held, just as a shareholder holds units in a company.

Discretionary: Commonly known as a family trust, the beneficiaries do not have a fixed entitlement to the capital or income of the trust, but the trustee has the discretion to decide the specific amounts to distribute and to whom. Due to the flexibility of the distribution, it is popular for tax planning and asset protection for family members.

Benefits 

There are countless reasons why a trust is beneficial. It can aim to reduce estate taxes, preserve important assets for your children and have the flexibility to manage your own assets throughout your lifetime.

Family or discretionary trusts focus more on assisting to minimize tax, but also aim at providing a future inheritance for your family in an appropriate manner. Unit or fixed trusts can be effectively used for businesses, joint-ventures or managed funds where there are many parties involved.

Warnings

However, trusts can be expensive and you could find yourself spending thousands to get one implemented. Thus, it is important to understand what your specific aims are by establishing one and if they are appropriate for you and in your circumstances.

It is best to contact your tax or accountant professional for further assistance to see if a trust can help you achieve your goals and objectives.

 

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