Trusts are an effective way to take care of beneficiaries who are not ready to manage their inheritance. They may be used to take care of young kids, disabled or hospitalised beneficiaries, or those with drug addiction problems. Below is a comprehensive guide on how trusts work.
How Do Trusts Work?
Trusts allow you to leave your property (assets and cash) under the care of a trustee. The trustee manages the property on behalf of the beneficiary. He or she must act in the best interests of the beneficiary.
The trustee should be someone you trust. It could be your spouse, parent, sibling, or close friend. Alternatively, you could hire a law firm or bank to manage the trust. If this is the case, conduct some background research to determine the expertise, reputation, and level of professionalism of the proposed managing firm. Further, check how much they will charge to manage the trust.
The trustee can decide how to invest funds in the trust and how to settle liabilities such as debts. For instance, he or she can opt to sell assets to clear loans. He or she also files taxes with the Australian Tax Office.
Types of Trusts
Below are some kinds of trusts to consider:
- A discretionary trust gives the trustee the power to decide which beneficiaries should receive the inheritance, how much they should receive and when they should receive it.
- In a unit trust, each beneficiary holds a specific amount of shares in the trust. The trustee has no power over how to divide the trust.
- In a bare trust, the beneficiary controls the trust while the trustee is merely an entity under whom the property is registered.
- A charitable trust allows you to donate a portion of your estate to charity.
Choose a trust that suits your situation. For instance, a discretionary trust is ideal if you would want your spouse to decide how your kids should share their inheritance. On the other hand, a bare trust can be used to bequeath assets to a beneficiary who does not want to be mentioned in the will.
Ask your wills and estates lawyer to help you register the trust. You will need to create a trust deed that details the responsibility of the trustee. In Australia, all trusts must have a tax file number that the trustee will use to file taxes.
With the above tips, you should have an easy time creating trusts. An experienced wills and estate lawyer will guide you through the process.
To learn more, contact a wills and estates lawyer.