Why You Could Be Sabotaging Your Financial Safety By Not Setting Up a Trust

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Life is unpredictable. And cruel.

Loved ones die tragically. Happily married couples turn into bitter divorce cases. Business relationships go sour. People sue each other.

And your financial situation is inextricably linked to the people in your life.

So it goes without saying that your financial future is unpredictable too.

There’s a way to protect your money from life’s curve balls such as family breakdowns, lawsuits, bankruptcy, accidents and irresponsible heirs – by setting up a trust.

We understand that for many, the concept of signing your assets over to a trust is enough to set worry free to run riot in your mind. However, it is one of the smartest financial decisions you can make.

In this post, we’re going to discuss what is a trust, why you might need a trust and the benefits of setting up a trust. You’ll understand why trusts aren’t to be feared, and you’ll be able to breathe easy next time someone asks you if you’re assets are protected.

What is a trust?

A trust is a type of agreement that separates control and legal ownership from beneficial ownership. In other words, you remove yourself from the ownership equation, so if someone comes after your money, it’s safely locked away outside their reach.

It outlines the rules and conditions by which you want your property and assets (that are held in the trust) to be managed by for your beneficiaries.

Why setting up a trust will protect your financial future

Yes, trusts can be complex. But the benefits are pretty simple. They’re all centred on protecting your hard-earned money from unforeseen events that can cause you to lose everything.

Let’s look at the benefits of setting up a trust:

Asset protection

When your assets are held by a trust, you don’t legally own them. The trust does. So, when the unthinkable happens, such as lawsuits, malpractice suits, bankruptcy or accidents, your assets are safe, because you can only get sued for assets held in your name.

Huge tax savings

Trusts and tax can be complicated. But the short of it is that huge tax savings can be made by distributing income or capital gains earned from businesses and investments owned by the trust, to low income earning and tax paying beneficiaries including family members and bucket companies.

Create more wealth

Growth and income-producing assets may be purchased and transferred through a trust. With some experienced manoeuvring and income distributions, you can significantly reduce the tax on investments and increase cash flow. You can then reinvest in existing or additional investments to create more wealth.

Keep assets in the family

Trusts allow you to put conditions on how and to whom your assets are distributed when you pass away. You can create a trust that keeps assets in your family bloodline, so your assets don’t end up benefiting someone you’ve never met.

Stop bitter estate disputes

Estate and will disputes are more common than we’d like to think. By setting up a trust you’re protecting your assets from probate as technically, they’re not yours as they’re not held in your name.

Discover the right trust type for you

Discretionary family trust

Family trusts are set up to manage and protect family assets such as shares, property and family businesses for future generations.

Testamentary trust

This type of trust is set up according to the instructions left in a will to prevent assets going directly to beneficiaries. Assets are held in a trust and funds are distributed according to the deceased’s rules and conditions.

Special disability trust

Disability trusts can be set up to help family and caregivers provide care and accommodation for disabled or vulnerable family members.

Bloodline trust

Designed to keep assets in the family, bloodline trusts protect the inheritance of your children and grandchildren.

Spendthrift trust

A property-control type of trust that limits an irresponsible beneficiary’s access to trust capital and income.

Unit trust

A type of trust that divides beneficial ownership of trust property into defined units for specific unit holders. Distribution of income and capital must be allocated according to the units held in the trust, and not at the discretion of the trustee.

Business trust

If protection from loss by lawsuits filed by creditors, employees and clients is your goal, a business trust is perfect. They also create a protective safety barrier between your personal finances and business assets.

Choose your trustee carefully

Trust administration is fraught with pitfalls for the inexperienced. It’s important to choose your trustee carefully as they’ll have complete control over the assets held by the trust.

It’s critical that they’re trustworthy, objective and have the skills to manage all aspects of trust administration.

Many people like to choose a family member, company or close friend as a trustee, and this can work well – most of the time. Consider your long-term needs, family movements, complexity and volatility of the relationship before you make your decision.

For some, appointing a highly experienced, independent third party is the wisest choice.

So don’t stick your head in the sand and hope that horrible things won’t happen to you. You’re not tempting fate or being negative by setting up a trust to protect your life savings and assets. You’re being realistic. And smart.

It’s the smart, prepared people whose financial legacy will withstand attack. Their wealth will live for generations to come and not be wiped out by lawsuits, accidents, and greedy human behaviour.

So are your finances protected?

Join thousands of informed and financially protected Australians by starting a conversation about trusts with a financial adviser today.

After all, you never know what may happen tomorrow.

If you have any questions about the COVID-19 Disaster Payment, feel free contact our office on 02 9223 4378.

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