What is a trust, and why do you need one?

You might have heard the term “trust” before, but what does it mean? A trust is one of the most effective ways to protect your assets for you and your family. There are many different kinds of trusts which you can set up depending on your situation – some popular types include discretionary trusts, fixed trusts, unit trusts and hybrid trusts.

A trust is an arrangement where you transfer legal ownership of something (such as money or property) to another person or company (called “the trustee”) that holds that asset for someone else (called “the beneficiary”).

This situation creates a relationship known as a fiduciary duty between the trustee and beneficiary, which means that both parties have certain rights and responsibilities towards each other. The trustee has a responsibility to manage the asset for the beneficiary’s benefit and, in some cases, must put their interests aside when managing the asset.

The beneficiary is entitled to any income or capital gains from that asset while held in the trust. Use this link for more information on how to set up a trust.

Asset Protection

The key objective to set up a trust is for asset protection purposes. It means that an individual or company’s beneficial entitlements (rights and powers) are legally protected from lawsuits and debt payments. The trustee holds these rights on behalf of the beneficiary, which prevents them from being taken away by other parties. Assets held in trust can be complex for others to access if they don’t have the express permission of the beneficiary or their trustee.

Avoidance of Probate Fees

If you own assets individually, your estate will need to go through probate when you die, otherwise known as judicial administration. This process takes time and money – approximately 5% of your estate goes towards legal expenses while it’s being sorted out, as well as administration fees that vary from state to state. Assets held in trust avoid probate fees altogether – the process is automatically carried out for you at no cost to your beneficiaries.

Privacy of Personal Information

Trusts provide privacy and confidentiality, which is not available with many financial accounts or investments. This confidentiality can be suitable for personal reasons, such as child maintenance payments or alimony. It can also be beneficial if you have business interests that may draw negative attention from competitors. Protecting information about your assets can give peace of mind, so you don’t need to worry about any potential breaches of confidentiality after your death.

Simplified Taxation on Income and Gains

Trusts are exempt from taxation in Australia in most cases, making them a favourable choice compared to many other types of investments. The beneficiaries can receive income and capital gains tax-free when they’re distributed directly to their bank accounts or by cheque sent out by the trustee. You might find that you pay much less tax overall when your investment is held in trust due to higher yields and lower fees than another type of account.

Oversight for Children with Special Needs

It’s crucial for families who care for children with special needs to set up trusts, so every aspect of their finances is secure. Parents may want to put certain assets into the trust for their children instead of will bequests (gifts) because all information related to the trust is private and can only be accessed by the trustees. It ensures that records on tax exemptions, social security payments or government benefits don’t need to be disclosed to anyone outside the family.

Flexible Investment Options

Trusts allow you to exercise more flexibility in how your money is invested compared to other types of investment structures. You have more control over which assets are purchased and sold, as well as being able to implement your investment strategy based on your preferences and tolerance for risk. Trustees can take a slow approach when moving away from high-risk investments, so you won’t find yourself losing out on potential income if changes aren’t made quickly enough.

Specialist Investments

Trusts can invest in some more hidden assets that you wouldn’t be able to hold for yourself, such as antiques and fine art. You can also access trust funds through various methods, such as PayPal and credit cards (with the right prepaid card). It might take some time and research before you’re able to find investments like these elsewhere.

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