A Beginner's Guide to Trusts and how they work

What is a Trust?

A Trust is a legal structure to hold and protect assets. Any type of asset can be transferred into a Trust - such as cash, property, investments, jewellery, shares or securities.  They can also be used to earn and generate income. There are different types of Trusts depending on the purpose – examples include Family Trusts, Business Trusts, Charitable Trusts and more.

Why have a Trust?

One of the main reasons people set up a Trust is to provide a certain level of security for assets – it could be to keep personal assets separate from business, or to manage assets for the long-term benefit of their family. Alongside asset protection, Trusts can have benefits for estate planning, saving and general asset management.

However, Trusts need to be set up and administered correctly. It’s important to know that holding assets in a Trust does not automatically override other legal obligations – for example, your obligations under the Relationship Property Act.

Setting up a Trust

This process requires several roles to be filled.

• Settlor - is the person who sets up the Trust, and who has the legal right to transfer the assets that will be held in the trust.

• Trustees - oversee the Trust. These people are selected by the settlor and can be anyone – a family member, an acquaintance, your lawyer, accountant or a Trustee company. Legal ownership of the Trust’s assets are transferred to the Trustees in the Trust Deed (see more on this below).

• Beneficiaries – the people who will benefit from the Trust, either now or in the future. These can be named or un-named people (for example, future grandchildren).

The Trust Deed

This is a legal document which outlines how the trust is to operate and how its assets and income will be distributed to the beneficiaries.

If you’re thinking about establishing a trust, please get in touch with us to talk through your situation.

The information in this article is provided to summarise this topic and is of a general nature. If you have any questions, please contact us.