Gifting assets to a family trust
Gifting Assets to your Family Trust or transferring property to a trust protects your investments and assets by placing them in a Trust Environment!
Let’s explore why you would transfer a property into a Trust or just give money to your Trust!
There are many opportunities for this. For a start a Family Trust is 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.
Your Family Trust should be the hub of your investments allowing for flexibility and control of your family assets!
Having now established your Trust, you may now ask how do I get money into the Trust and what can I use it for?
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?
There are two main ways to add money to your trust :
- 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 and asset protection
When transferring your asset to the trust, make sure you have ticked all the legal boxes. This will mean that the Trust Assets are secure and recognised as owned by the family trust. The Trustee should document the transfer for all property and loan transfers. Minutes should explain why and how it is a gift to the Trust. Assets that are transferred to your Trust will then 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 it is not easy to get it back
There are 2 points here you should consider
Transferring the Asset or loan to the Trust as a gift achieves your estate planning needs. The asset or money is gifted, and 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 (i.e. windup) the Trust. In most cases, upon vesting of the Trust, the capital would be distributable to the default beneficiaries. You should consult your Trust Deed to understand how it would work for your circumstances.
Point 2 concerns the trust’s ability to enter into a Gift and loan-back arrangement. Again, this requires a well-documented agreement and actual money changing hands. If you are considering this, be careful.
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’s ability to pay and several other factors. Even though a loan agreement is unnecessary, many people still decide to draw an agreement for certainty and estate planning.
The Trustee should repay the loan if requested. When no loan agreement is in place, the trustee should record the loan for a minute to ensure documentation. The accountant should record it on the Trust’s balance sheet. As a trustee or lender, you can request interest to 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
There will be Capital Gains implications, and we can assist you here . Tread carefully and allow us to help you work through the impact of the potential transfer..
A Trust can help protect you and your family’s assets. Many families gift assets to the Trust. This means you forego ownership, and the asset forms part of the Trust’s capital or corpus. A Trust can offer protection over time. Your Trust protects your assets when things go wrong. These include Creditors, angry family members and newly wedded children. The Trust protects your Assets as these people can now not claim these assets as the Trust now owns them.
A Family Trust mechanism allows you, as the appointed person, to establish control. The appointed person can fire and hire the Trustee, effectively controlling 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, usually 80 years after establishment.
There are Social Security opportunities. Gifting can, in some circumstances, be useful for social security planning, but seek advice!
Every person’s circumstances are different. Therefore, we have outlined above a simplified summary of how the trust and your money operate. 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
