Trusts:  Practical scenarios

When we talk about Trusts we often think about fancy and complex structures which will exclusively benefit the ultra-rich and which find no place in the more ordinary realities which less wealthy people live in.  This cannot be more distant from the truth.

In actual fact, trusts help in dealing with very common circumstances in life which we can all face.  The best way to outline this is by providing specific scenarios that we may all encounter and which we would want to address, where a trust can prove effective.  Let’s take the scenario of a typical family composed of parents with children, where the parents would have some savings or other assets (e.g. immovable property) that they would like their children to enjoy and benefit from.

The parents are concerned about what will happen to these assets if they had to pass away at an early age. Will the children, who may be minors, be duly taken care of financially? Moreover, even If they are of age they may still be too immature to manage these assets wisely. Things can get even more complicated should one of the children suffer from a disability and therefore in need of particular financial help, or from some form of addiction which may lead to a complete dissipation of the assets.

Settling assets in a Trust, would mean having these assets owned by the Trustees for the benefit of the children, and even grand-children and other future descendants, effectively meaning that if the parent/s pass away, any assets held in the Trust will continue to be administered by the Trustee for the benefit of the beneficiaries.  But can the children simply ask the trustee for the money or the assets?  The answer is no, or better, it depends on how the Trust is structured.  So, if the parents want to avoid the money or other assets to end in the child’s name at his request, then they could structure the trust in a way that the trustees distribute assets only in certain cases, e.g. for medical reasons, or for the children to purchase their first home or set-up a business venture or only upon them reaching a certain age.  Trusts therefore allow the parents to retain some form of control over the manner in which their children make use of the assets which are passed down to them, even following their demise.

Whereas, the parents may want to make sure that their children and grand-children make use of the assets which are passed on to them in a certain manner; they would also want to make sure that they have enough assets to allow them to live comfortably through-out their life-time, including during their retirement and old-age.  Given that the Trustees would be the actual owners of the assets; would this mean that the parent loose total control over these assets and have no access to them when needed?  Again the answer Is no. The Trust can be structured in way to make sure that the parents still have access and control over those assets during their lifetime.  Infact such a set-up would ensure that the parents remain the only beneficiaries during their lifetime in manner which, as much as possible, ensures that they continue to enjoy the standard of living they are accustomed to. By so doing they also ensure that should they become incapable in their old age of managing their own assets, their assets are still being managed and expenses met from the assets held in trust.

It is common that parents want to minimise conflicts within the family.  Through a Trust the assets held can be protected from such conflict since assets are managed by a third party professional which helps in avoiding unnecessary tensions between siblings e.g. when deciding whether a particular property is to be sold. Furthermore trusts can also be structured in a way that assets held in trust which are distributed to the children will not form part of property held in common with their spouse.

Possibly, after reading the above, one further question can come up; these Trusts must really be expensive?  There are fees but these are very reasonable and will depend on the complexity of the cases. Such an expense may be compared to that of an insurance, as one would be making sure that at any point in time, the assets within the Trust are manged by professionals for ultimate use by the family, wisely.