Do I even need my Trust anymore? This is a question that comes up regularly with my clients. Sometimes the answer is - no you don't.
Do I even need my Trust anymore? This is a question that comes up regularly with my clients. Sometimes the answer is - no you don't. Trusts can be expensive, they take time and energy to run and if you don’t have a good reason for it – then get rid of it.
However, for many clients, there are still great reasons for having Trusts – they just don’t remember what they are.
Lots of Trusts out there are now getting to that 10-20 year stage – the point where it’s just something you have, but can’t remember why, and like a Sky subscription you don’t use, eventually you wonder if you need to keep paying for it.
Rightly or wrongly quite a few Trusts got set up as little more than tax plays. And while it should never have been a prime motivation for making a Trust there were certainly some nice tax benefits. However, that tax benefit has reduced over time and is sometimes less valuable, particularly now that we don’t have 39% personal tax rates. Your individual circumstances may have made it less meaningful too. If you don’t have any business income anymore then having a Trust might not really be that handy for tax.
Trusts cost money. Running a Trust properly takes time and unless you are a Trust expert you can’t do it justice. Most people don’t like reading legal cases and up to date up with the legislation in their spare time – that’s why you have an independent trustee. And these aren’t free. These people take on risk to manage your Trust, they must spend time keeping abreast of all the legal changes – and they’ll be the ones holding the baby (hopefully not literally) should the worst happen to Mum and Dad in an accident.
I’d suggest if your Trust isn’t worth a few hundred a year to you then it’s probably not worth having it. Get it wound up.
However, like anything, something isn’t worth much to someone who doesn’t understand its value. If I give you a bag of dirt you may not thank me. Shock horror.
However, if I tell you that dirt bag is from a French forest and contains valuable truffles then you’ll may start to appreciate its value.
That’s why it’s so important to understand the purpose of your Trust and what its value is to you.
Trusts are still great at protecting assets from creditors. I recommend that all my clients that are properly in business consider having a Trust. It is still a valid plan to ‘make the Trust rich and yourself poor.’ But if you aren’t in business anymore, maybe you’ve sold or wound it up, this may not be a valuable reason to keep your Trust.
Estate planning is another prime driver for using Trusts – Trusts are sometimes described as “living wills”. Families aren’t getting easier. They are getting more complicated and conflict and litigation between family members is on the up. Wills are being overturned by the Courts when children are unhappy with their inheritance. Having family assets in a Trust can be a great way to manage the transition between generations.
You could use it to ensure the sketchy son-in-law doesn’t benefit if he does a runner, or to help the wayward child who can’t be trusted with money.
A Trust can’t be overturned by the Courts in the same way a will can and a lot of my clients take comfort in knowing that I’ll be around to ensure their wishes are carried out as independent trustee.
Many Trusts were set up with one eye on helping the settlors qualify for residential care subsidies and avoid paying for care themselves. Residential care isn’t cheap (can be north of $50k per year) so why wouldn’t you want the government to pay for it? But if your only reason to keep the Trust is to take advantage of these subsidies – and you aren’t likely to be needing care soon – it could be worth winding it up.
For now, a perfectly run Trust could help you avoid having to pay for your own care (though it is a high bar and many Trusts haven’t been run well enough to qualify). However, the government is looking at this very hard as the subsidy is getting very costly to them and I expect this benefit not to last too much longer.
My main message is to help you understand whether your Trust has value. If it doesn’t, get rid of it. But if you understand why you have it, and why it’s valuable to you, then ensure it’s managed properly.
If you aren’t sure on the merits of your Trust, talk to your lawyer or accountant.
A well-managed Trust can be like income protection insurance. You hope you never need it, but if you do, it jolly better pay out.