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Types of Trust Funds That Can Protect Your Assets

Along with having a will drawn up to protect your assets and your family if something happens to you, you can choose to set up a trust fund. A trust can be set up for your entire family or just for your children, and you can dictate that the money be released to them at a certain age. Here are some of the types of trusts you can set up to protect your family.

What Is a Trust?

A trust is an investment tool, to which a person’s assets are transferred to be managed by an individual or group of people, in order to benefit others. There are many different types of assets which can be transferred to a trust, including the following:

  • Cash
  • Real estate
  • Stocks
  • Bonds
  • Antiques
  • Art

Family lawyers can give advice about which assets can be transferred to a trust.

Types of Trusts

There are several different trusts which are legally recognised, but they generally fall into one of these three categories.

Family or Discretionary Trusts

A family trust, also called a discretionary trust, allows the trustee to decide who gets distributions from the trust and when they will be dispersed. This type of trust works well for families who own businesses with capital growth or whose assets generate income. A family trust is easy to set up and manage, and this type of trust is recognised in every state or territory. In addition, they provide flexibility in regards to sharing the tax burden among the family members, distributing income, and protecting assets.

Unit or Fixed Trusts

Instead of allowing the trustee to choose how to distribute the trust’s income to the beneficiaries, a unit trust, also known as a fixed trust, divides the ownership of the assets transferred into the trust into units. Each unit holder, or beneficiary, has a certain number of units in the trust and distributions from it are made according to that amount and in the manner the trust dictates at the end of the year. This type of trust is usually recommended when more than one family is included in the trust.

Hybrid Trusts

A hybrid trust has aspects of both the discretionary and unit trusts, in that the trustee is allowed to distribute trust income and capital to the beneficiaries. However, it is distributed using a proportional method, like the unit trust, depending on the number of units assigned to the beneficiaries. Since they have income tax and capital gains tax benefits, this type of trust is usually preferred for structuring business or investment activities.

While trust funds are often easy to set up, they should be set up by a qualified professional, like a family lawyer, since they are legally binding.

Trusts serve many purposes, such as protecting a person’s assets from creditors during a bankruptcy. However, they are often used to make sure a family is cared for if something happens and the settlor dies or can no longer make decisions regarding their assets. It you have a sizable estate or you own a business and want protection for your family, speak to a family lawyer about trust funds.

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