Family Trusts Beware
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So you have set up a family trust so that you and your family can control and enjoy the assets in the trust. Well get ready for a shock. If you do not distinguish between the control and enjoyment of your family trust assets you could be heading straight towards a very expensive tax debt.
You have to be very careful when you are the founder and the trustee of the trust. The courts have recently started getting strict on family trusts and there have been several adverse rulings about the way in which family trusts are administered. This has been put in place because of the growing number of people trying to hide assets from creditors and also gain unfair tax advantages.
So could you trust be at risk of being set aside as a sham trust by the courts? The tax man is now showing a much greater interest in family trusts so you have to make sure that it is all above board. The tax man will come straight for you if you do not properly set up and administer your family trust.
You have to make sure that at the very least you hire a independent trustee who is not connected to the family, hold regular meetings and compile minutes of those meetings, prepare an annual financial statement and inspect the Trust Act. If you do not adhere to these bare minimum requirements you may very well find that your trust will be left without the protections usually associated and even incur a heavy taxation liability.
The fundamental nature of trust law is that the enjoyment and control of assets and liabilities of a trust should be completely separate. This is so that trustees are able to make independent decisions. You need to have impartiality present when you operate a family trust.
If separation is not observed you will run into troubles. With your trust you have to be able to show that any decisions are able to be scrutinized by other trustees so that unfair financial practices can not be engaged in by one party trying to hide money from the tax man or creditors.
In the context of estate planning, a family trust is a legal relationship created by someone through placing assets under the control of another person. It is used for the benefit of family members so needs to be a financial plan which has positive benefits for every person who is listed as a trustee.