Family Trusts: Advantages & Disadvantages

When considering whether or not a trust may be appropriate for your situation, it is important to understand how you may benefit, and what you need to be aware of.

Advantages

There are numerous benefits that can result from establishing a trust. A family trust will often be an asset planning structure that:

• Provides for yours and your family's financial future.
• Provides security from third parties.
• Provides flexibility over time.
• Is capable of benefiting several generations.
• Can have taxation advantages over other possible structures.
• Maintains confidentiality about your financial affairs.
• Does not suffer from many of the disadvantages of alternative structures.

Disadvantages

While a trust does have benefits, it is not without its detractors. Some disadvantages that you should be aware of are: 

• Losses are ring-fenced -i.e they are 'stuck' - in the trust. 
  • However, these losses can be offset against future income. This means that your future income will be decreased by the amount of the loss that has been carried forward, resulting in no tax liability on trustee income, until all the losses are utilised. 
  • These losses can be carried forward indefinitely - i.e. until they can be offset, or when the trust is wound up. 
• A poorly drafted trust deed may create problems.
• Electing trustees who may not understand what is required can create issues.  
• Maintaining records.   

Conclusion

Deciding whether or not a trust is suitable will require you to weigh up the advantages against the disadvantages. In most situations, we find that if we are careful, prudent and look into the long-term, the formation of a trust can be extremely beneficial. By taking a pro-active approach, many of the disadvantages can be mitigated against therefore making it a worthwhile endeavour to create a trust.

This is especially the case where the views of the next generation can be understood, or if it is appropriate to involve them in the asset planning. It may be possible to prevent future difficulties or at the least, identify potential problems and issues to be aware of, long before they have the opportunity to arise.

At Sanctuary Trust Law, our hands on approach with yearly meetings, and communications during the year will ensure your trust remains up-to-date, valid, and hassle free. We are here to help you take advantage of the sanctuary you have created. To make an appointment, please click here.