Trusts

A Trust is a legal fiction which, when created, is controlled by a legal entity known as a Trustee.

A Trustee can engage in legal transactions on behalf of the Trust such as buying and selling assets or running a business.

If you are a Trustee of a Trust, subject to the terms of the Trust, you can control the assets of the Trust in relatively the same fashion as if you owned them.

Although one or more persons can be elected as the Trustee, so too can a company. Having personal Trustees keeps the Trusts simpler and cheaper to run.

However, the benefit of having a company as the Trustee is that the difficulties that arise with having a personal Trustee such as the death of a trustee, or a Trustee being declared bankrupt, can be avoided.

Trusts can be used as a tax minimisation strategy and as a means of providing shared income for family members.

It can also be used to minimise the risk of creditors making a claim against your assets and to place valuable assets out of the direct control of individuals at risk of making poor decisions that may affect a number of stakeholders involved.

This type of Trust is special in that the Trustee has complete discretion as to how to distribute the capital and income of the Trust between the potential beneficiaries of the Trust. Following are some examples where this could be helpful.

Example 1 – The Trust owns real estate which it rents out and earns $100,000 of income a year. Dad is the Trustee. Dad distributes $40,000 to himself, $40,000 to his wife and $10,000 to each of his children who are both over the age of 18 years and studying at university. This means that the total income tax paid by the 4 family members would be less than if Dad had all of the $100,000 taxed in his hands only.

Example 2 – The above Trust earns the same income of $100,000 a year, but Mum is on maternity leave and not earning an income while Dad is earning a large income of $80,000 from his employment. This year, Dad decides to distribute $80,000 of the income from the Trust to Mum and $10,000 to each of the 2 children at university which means the income tax paid by the 4 family members would be less than if Dad had retained the $80,000 of income from his employment and the $100,000 income from the Trust.

These 2 examples are just a glimpse of the potential benefits that can be reaped from owning family assets in a Trust.

Mildwaters Lawyers can assist you with all your legal needs relating to Trusts such as:

• Drafting trusts
• Transferring assets into a trust, including land, and preparing all necessary documentation related to the transfer including any agreements where required
• Assisting with farming rearrangements or small business rearrangements involving trusts
• Reviewing trusts to ensure they comply with financial and trust-related legal requirements
• Preparing documents to make changes to Trusts such as a retirement of a Trustee or Appointor and appointment of a new Trustee or Appointor
• When there has been a change in Trustee, arranging the registration on any land titles which a trust may own
• Liaising with Accountants, Financial Advisers and other professionals regarding arrangements concerning trusts.