Why bringing in an expert to help set up a trust is a good idea

When you're laying out your estate planning strategy, you have plenty of options to help insulate your family from financial risk and ensure your money and assets are properly protected. One of the options for this effort that many Australians find useful is establishing a trust.

However, there is no one-size-fits-all strategy to establishing a trust that adequately takes care of your wealth, and as such you would be wise to work with someone who has plenty of experience dealing with various types of financial strategies for building and protecting wealth. First, though, you may need a more complete understanding of what establishing a trust entails – and what it will require of you.

Where to begin

Many people may hear the words "trust fund" and think of extremely wealthy families gifting large sums of money to young adults, but they actually serve an incredibly beneficial purpose for far more people than that. If you own even a few valuable assets, such as land or a substantial retirement account, setting up a trust may be a great way to protect your assets long-term.

The first thing you need to do when thinking about establishing any kinds of trust funds is to take stock of all your assets. That can include all real estate you hold, your retirement accounts, non-real estate property you own outright, money you have in savings accounts, a life insurance policy (or policies) and so on. Altogether, that can add up to a substantial amount of wealth, and it's a lot to keep track of, especially when you're dividing those assets up among your various loved ones, charitable organisations and so on.

In the event of your death, you may want to designate various ways for all that wealth to be distributed, but only in certain circumstances. For instance, if you have young grandchildren under the age of 5 and want to protect their long-term interests without simply bequeathing the money to their parents, you can set up a trust so that they receive the assets you've earmarked for them on their 21st birthdays, for example.

However, it all starts with some basic roadmapping, with the help of both a seasoned accountant and a lawyer, who can recommend the best type of trust for your various needs.

Setting it up

Once you know what your assets are and how you would like to distribute them – either while you're still alive or upon your death, for instance – a professional can give you even more options. For instance, if you do not expect to pass away for a few decades or more to come, that advisor may recommend a revocable living trust, which allows you to change any or all of the conditions for distributing your wealth on a case-by-case basis, as you see fit, while you're still alive. Then, once you pass on, the trust would become irrevocable, allowing your beneficiaries or your estate to save on probate costs.

In addition, if you're setting up a living trust, an expert can also advise you as to the best strategies for setting up a trustee company that will manage the assets you put into the trust, no matter what they are. This option isn't for everyone, but it certainly provides a lot more flexibility if you expect to see your financial needs – or those of your beneficiaries – change over time.

Another type of trust you may need to know about if you plan to leave any assets to a loved one with a disability is a special needs trust. In many cases, simply leaving a large amount of money or valuable assets to that person may make them ineligible for the benefits they need to live comfortably with their disability. In effect, this would create a situation where the trust provides a place to live or a steady income to that person – but because it is out of their direct control, it does not impact their eligibility for these benefits.

Understanding the benefits

A lawyer will also be able to set up your trust in a way that minimises the beneficiaries' tax exposure. For instance, if you have assets that are only likely to appreciate in value (real estate, for example), putting them into an irrevocable trust as early as possible could help create an estate tax exemption for your loved ones or other beneficiaries, as the assets' future growth may not be counted when calculating estate taxes.

This allows them to avoid some serious sticker shock when receiving their next tax return in the mail.

The more you can do to put all these issues in writing and generally ensure that your beneficiaries are protected from facing huge tax bills, the better, as might be the case when simply naming them as a beneficiary of other financial vehicles.

Getting the big picture

Simply put, there are many ins and outs when it comes to setting up a trust, because there are many options for doing so, some of which overlap and some of which do not. Even if you are someone who considers themselves well-versed in the subject of long-term financial planning, you may not be able to get a good understanding of your options all alone. Getting the help of experts to navigate this path with you is a must, so that all your long-term planning will go off without a hitch when the need arises.

Just as you wouldn't draw up a business contract without the help of a lawyer, there's little reason you should ever attempt to set up a trust without the help of a knowledgeable expert. For that reason, it's wise to give the professionals at WMC Accounting a call to help you sort through all your needs, including the right kind of trust – or trusts.