Gifting Assets to your Family Trust protects your investments and assets by placing them in a Trust Environment
It is also great for tax planning. Many of us establish a Family Trust for asset protection and to ensure our assets are correctly passed on to the next generation. Having now established your trust, you may now ask how do I get money into the Trust?
Fundamentals of a family trust
Let’s explore the basics of a family trust first. The Trust has a couple of fundamental elements that you should be aware of, but in simple terms these are:
- Trust Deed – the rule book of how you run your Trust
- Settlor – establishes the family’s trust.
- Trustee – runs the Trust on behalf of the beneficiaries
- Appointor – appoints the Trustee.
- Beneficiary – family who benefits from the Trust.
How do I get money into my family trust?
Putting money into your trust can be done in two ways:
- Gifting assets from your funds to the trust.
2. A Loan from you to trust – repayable defined or non-defined
Either method works but gifting assets to your Trust is better for estate planning.
It must be done properly so that the Trust Assets are secure and recognised as owned by the family trust. This means any transfers should be well documented and explained that it is a gift. It will probably be allocated to the Corpus of the Trust
A Trust is a legal entity. However, some registries won’t recognise the Trust but require the Trustee to be the registered owner on behalf of the Trust.
Beware Gifting means not easy to get it back
There are 2 points here you should consider
Once the asset or money is gifted it forms part of the capital or corpus of the Trust. In simple terms your Trust now owns it and the only way to get it back is to either make a specific distribution as capital or vest (ie windup) the Trust. In most cases, upon vesting of the Trust the capital would be distributable to the default beneficiaries. To understand how it would work for your circumstances you should consult you’re Trust Deed
Point 2 – is the ability of the Trust to enter into a Gift and loan back arrangement. Be careful if you are considering this as again it needs a well-documented agreement and actual $$$ changing hands.
Loaning money to your Trust!
Loaning money to your Trust will allow you to request that you can recall the monies you have lent to the Trust . Repayments will depend upon the Trust the ability to pay and several other factors. Even though a loan agreement is not necessary, many people still decide to draw up an agreement for certainty and estate planning.
The Trustee has an obligation to repay the loan if requested. If no loan agreement, then maybe at a minimum the loan should be recorded by the Trustee by a minute. The accountant should record it on the Trusts balance sheet. Yes, interest can be charged but that again depends upon what you have agreed to with the Trust and you as the lender.
Gifting assets to the Trust
A Trust can help protect you and your family’s assets. Many families gift assets to the Trust. This means that you forego ownership and the asset forms part of the Trust’s capital or corpus. This means that over time creditors, angry family members and newly wedded children cannot make a claim on these assets as they are now owned by the Trust.
In most Family Trusts, the control is established by yourself as the Appointor. The appointor has the ability to fire and hire the Trustee. This means that you effectively control the Trust.
Upon your death, your executor acts on your behalf. The great thing is that the Trust continues to the next generation detailed in the Trust Deed. This will continue until the trust vesting day normally 80 years after establishment.
As the Assets are owned by the Trust, gifting can in some circumstances for social security planning.
Every person’s circumstances are different. Therefore what we have outlined above is a very simplified summary of the operation of the trust and your money. We suggest that you seek professional advice. We are happy to assist you if you need help in this area.
Reach out to Geoff if you wish to talk about your circumstances. Phone 95979966