Family Trust Formation

What is a family trust?

A trust exists when one person (a "trustee") possesses and owns property for the benefit of another person (a "beneficiary"). A family trust is a trust set up to benefit members of your family.

The objective of the family trust is to gradually transfer your assets to the trust, so that legally you own no assets yourself, but through the trust to still have some control over, and get the benefit of, these assets.

You may set up a family trust while you are alive (by a trust deed) or when you die (by the terms of your will). Theseinstructions are given mainly regarding trusts created while you are alive, and with the benefits that these trusts can provide for you in your lifetime.
You may wish to set up a Family Trust with a Trust Deed designed for an individual or a Trust Deed designed for a couple.

What are the key elements of a family trust?

As all types of trust, a family trust shall have the following elements:

  • The settloris the person who sets up the trust, and is usually also the person who currently possesses the assets that will be transferred to the trust. There may be more than one settlor: in the case of a family trust, a married couple may both be settlors.
  • The trusteesare the people who are responsible for administering the trust and they must make sure that the wishes of the settlor (as set out in the trust deed) are carried out. Usually, an independent trustee is appointed by the settlor, often his lawyer or accountant.
  • The beneficiariesare the people who may benefit under the trust and they usual are all member of your family (including possible future family members such as future grandchildren). These beneficiaries are “discretionary” beneficiaries and they have no right to receive any benefit under the trust; instead, the trustees have a power to choose which of these beneficiaries will receive the benefit of any assets.
  • The trust deedis the legal document that states the settlor's wishes and sets up the trust. It appoints the trustees and states their powers and duties, states the beneficiaries, and states various rules for the administration and management of the trust.
  • The trust's assets- The trust must have some assets. The eventual aim is for the trust to hold all your significant assets.

The aim of a family trust

The aim of a family trust is to transfer your significant assets from personal ownership to ownership by the trust.In this way, you protect your assets from various threats, such as claims by creditors, ex-spouses, or partners.


By what age should I have transferred my assets to a trust?

At the latest by age 55 in order to get the maximum benefit from your trust. Therefore, people are advised to consider the advantages of a family trust in their forties and fifties.

But even if you do not transfer your assets to a trust by age 55, a trust can still provide you with benefits.


The costs of maintaining a trust

Maintaining a trust has certain costs and overheads. There are annual accounts and annual tax returns to be held and you should comply with all requirements provided by the Tax Authorities. So, it is significant you are fully aware and you can afford the costs.


What assets can or should be transferred to the trust?

Almost any assets can be held by the trust, such as real estate, motor vehicles, valuable artwork, household items, and company shares. You shall receive advise on what assets should be transferred to the trust.


The steps for transferring your assets to a family trust

Once the trust has been formed, the steps involved in transferring assets to the trust are the following:

  • Select the assets to be transferred to the trust –usually it is the family home. You may also transfer holiday homes, boats, vehicles or paintings - indeed any assets that you personally possess.
  • Get valid and acceptable valuations for that asset - Usually you will need to get a market value for the house or other asset. The values should ideally be fixed by an independent valuation - and by independent expert valuation of government and other registered stocks and debentures.
  • Transfer the ownership of the assets in exchange for a debt - Typically you would make an Agreement for Sale and Purchase of the house or other assets to the trust.
  • Forgive the debt –After the above, the asset has passed to the trust, but the trust owes you a debt for an equivalent amount. A debt owed to you by the trust is still a personal asset of yours, so you have not yet succeeded in divesting yourself of significant assets. The solution is to forgive the debt to the trust. This is achieved in stages over several years, by a "gifting programme", so as not to incur duty on the forgiveness of the debt. The process of forgiving the debtis necessary to be made.Once the debt has been fully forgiven, you have achieved "personal poverty" in relation to that house or other asset. You no longer own it - the trust now owns it. But you can still receive a benefit from it as a beneficiary under the trust.