Trusts are a way of putting aside assets and protecting them from risk in order to benefit nominated individuals. To set up a trust you need three things:
- A trustee. The trustee legally owns the assets but deals with them for the benefit of the beneficiaries.
- An asset e.g. land, a house, stocks etc.
- A person or people (the beneficiaries) who will benefit under the trust.
Setting up a trust can be done either while you are alive, or through a will. Trusts set up during your lifetime will require a trust document that lists the names of the beneficiaries, the names of the trustees, a description of the trust’s assets and details of how the assets can be distributed. Trusts set up through a will usually only take effect when the testator dies. The will names the trustee and describes the purpose of the trust and who it is to benefit.
Types of Trusts
Broadly, there are two types of trusts – private and charitable. A private trust is set up to benefit people named as beneficiaries e.g. family members. A charitable trust functions to provide benefit for charitable reasons – to fund a homeless hostel, for example. To set up a trust as a charitable trust it must be approved by the Inland Revenue Department.
Reasons to set up a trust include:
- To protect your home in case of business failure.
- To ensure that family members with special needs are looked after.
- To prevent wealth leaving the family through marriage breakups.
- To ensure that property is passed on to future generations.
Setting up a trust is a complex affair and it is vital that you seek adequate help and advice from an experienced trust lawyer or a trustee corporation. The more complex the trust the more expensive the set-up cost is likely to be. There will also be on-going costs for administration, asset transfer and taxation etc. Remember too, that trusts must maintain their own set of accounts and adhere to rigorous record keeping standards.