Trust others with your family's financial future
Published 29/02/2012 | 06:00
It's one thing to plan for a scenario where you die unexpectedly. Often a simple will transferring all of your assets to your spouse will suffice.
But how many young farmers have thought about what might happen to their family or farm if both they and their spouse died suddenly?
This is where a discretionary trust comes into play. It can hold assets in legal limbo until they are distributed to beneficiaries. It works well in a farming situation where there are young children and time is needed to consider what should be done with the assets. The other advantage of a discretionary trust is that there is often no gift, inheritance tax or capital gains tax on the assets going into the trust on the death of the person who set it up.
It needs to be administered by trustees, who take decisions on behalf of the now deceased person who set up the trust.
Ideally there should be at least three people appointed, with a simple rule that the trustees decide all matters by majority voting. Obviously, the trustees should be competent and trustworthy, but it is not necessary that they be professionals. Instead, they can hire in whatever expertise they need. It is important that the trust document states that the trustees are paid for whatever work they do. While this may sound like an unnecessary expense, it ensures that the trustees take the task as seriously as they should.
In general, the concept of a trust is that it holds the assets for the benefit of the persons who are ultimately intended to own the assets, which are normally the children. The trustees themselves have no right to any of the assets but have a general power, subject to whatever rules are written into the trust, to give the assets to the children when and in whatever amounts the trustees see fit. None of the children will have an absolute right to any part of the trust fund. Instead they can receive property from the trust fund.
Whoever sets up the trust can have their views known in two separate ways:
1) Letter of wishes -- this is not legally binding but it is intended as a guide for the trustees on how they would like the assets handled. It should include a detailed outline of who gets what and when, along with any practical information such as PPS numbers, particulars of bank accounts, assets and debts, and relevant contact details of key people such as the accountant, plumber, banker and vet. Details of title, Single Farm Payments, Department schemes, other non-farm property and who looks after it should also be specified.