How useful are trusts for wealth conservation?

A trust is simply a rule book for the management of property by one person (the trustee) on behalf of another.

Whether a trust can deliver wealth conservation or asset protection outcomes for a person, family or beneficiary group largely depends not only on the terms of the trust (the rule book) but how it is operated.

When interviewing clients about their wealth conservation, estate administration and succession objectives, we normally ask them, “do you have an interest in any trust as a trustee, controller or beneficiary?”. Most often the answer is no.

Then we ask clients of working age, do you have superannuation? The answer is normally yes.

Superannuation is in fact held in a trust by a separate person to the member (the Trustee) and therefore cannot form part of the estate managed by a will unless arrangements are made to pass the superannuation death benefits to the legal personal representative of a person’s estate (the Executors or Administrator).

While a simple example, this case illustrates that unless you know the purpose of the trust it is not possible to effectively deal with it in a person’s estate administration plan.

(For our professional colleagues) We have released on the Community of Practice section of our website a technical paper and slides that set out a fuller explanation of these issues.

Let us know if you would like us to give a technical briefing on this subject to your staff or clients.

(For our clients) You need to understand how you can hold wealth for the long term if you want to make sure you have money available later in life. A purely discretionary family trust in most cases is like a rudderless ship going in no particular direction. Financial abuse can easily emerge when there is a divergence of values and purpose between the trustees, controllers of a corporate trustee and the trust beneficiaries. If you are a beneficiary of a trust let us ask the question “what is the benefit of this trust in which you have an interest?” If you do not have a clear and simple answer to this question, you may be at risk of abusive or coercive conduct in the future. Let us know if we can help you resolve this question.