Many clients who established family trusts in the past often tuck the trust deed away, believing that everything is safeguarded simply because "it's in trust". However, as circumstances and laws evolve, it’s important to periodically review whether your trust structure is still meeting its intended objectives.

Reviewing the purpose of your trust

The primary reasons for setting up a family trust typically include:

• Protecting family assets from creditor risk: Ensuring that assets are isolated from potential creditors.
• Transferring significant assets to the next generation: Facilitating the smooth transition of wealth to heirs.
• Separating assets from different relationships: Ring-fencing assets for children from a previous relationship.
• Protecting family members with special needs: Providing for individuals who may require additional support.

It’s essential to periodically reassess whether those objectives still apply and if so whether the trust continues to fulfil the goals effectively.

Considerations for your trust structure

1. Is the core asset still within the family? If you’ve sold a family business or significant asset, the risks relating to that core asset may have diminished. If so, the ongoing administrative costs of maintaining the trust might outweigh its benefits. On the other hand, the original objectives for the trust may have changed from, for example, protecting the core asset from creditors to a achieving a measured transition of wealth to the next generation. In such cases, it is important to evaluate and balance not only the ongoing objectives and benefits of the trust against the costs of maintaining the trust but also to compare the potential cost of the assets becoming vulnerable to claim if the trust is discontinued.
2. Protecting against creditors: The integrity of a trust can be questioned if the person(s) who transfers assets to the trust (settlor) also serves as the only trustee(s) and retains substantial control over the trust assets (by virtue of the powers they can exercise in relation to the trust). In scenarios where the settlor can in effect deal with trust assets as if they were their own, creditors might have good grounds to challenge the trust’s legitimacy. A carefully structured trust deed, ensuring sufficient independence, transparency and separation of powers, is crucial to protecting against such risks.
3. Beneficiaries living overseas: It’s common for settlors to include their children as beneficiaries of a trust. However, with global mobility, having beneficiaries living abroad can introduce complex tax implications. For instance, if a beneficiary resides in Australia, any distributions to that beneficiary from the trust can be subject to Australian tax laws, potentially complicating your financial planning.
4. Disclosure of information to beneficiaries: Trustees are generally required to proactively disclose basic information to all beneficiaries, including informing them of their beneficiary status. Because beneficiaries can request further details – including financial details of the trust - it’s important to ensure that the trust deed is appropriately structured to minimise the potential risk of unnecessary complications arising from disclosure.

Next steps

To ensure that your trust continues to meet your needs and adapts to any changes in circumstances or laws, we recommend contacting our Trusts and Private Clients specialists. They can review your trust deed and help determine if your current structure remains fit for purpose and suitable for your objectives.

Examples of factors they will review:

• Is your trust still relevant and necessary?
• Is any change needed to the current trustees and/or beneficiaries?
• Are trust records up to date?
• Have assets been properly transferred to the trust?
• Has all gifting been properly completed?
• Do you have a valid memorandum of wishes?
• Does your will align with the trust?