Is my Family Trust fit for purpose?

Trustees need to be aware of their responsibilities - and reviewing their Trust is key

While many Trusts still serve a useful purpose, some families have resolved to wind up their Trusts for a variety of reasons such as a change of the beneficiaries’ circumstances. 

The Trusts Act 2019 (Act) outlines the importance of reviewing asset planning matters and family trusts to consider whether they are still fit for purpose.

Winding up a Family Trust is an important decision, influenced by various personal, legal, and financial factors. Before proceeding with the wind up of a Family Trust, here are some important considerations to guide the decision-making process:

Purpose of the Trust

One of the primary considerations is the original purpose of the Trust. The reasons for establishing a Family Trust often influence the decision to keep or wind it up. Trusts are typically created for asset protection, estate planning, or to manage family wealth across generations. 

If the original purpose is still relevant, such as safeguarding assets from creditors or ensuring a smooth transfer of wealth to beneficiaries, the trust may still serve a valuable role. Conversely, if the reasons for establishing the trust have diminished or changed, it may be worth considering winding it up. For example, if the Settlors have retired from their business and satisfied that there is no longer a personal risk associated with owning and operating such business, they may wish to simplify their legal arrangements and wind up the Trust and transfer the assets to themselves personally.

Beneficiary Interests

Understanding the interests of the beneficiaries is crucial. Family circumstances can change over time. For example, beneficiaries’ financial situations may improve, or relationships may evolve. These changes can impact the need for a Family Trust. Families should consider whether the trust structure still aligns with their current circumstances and whether the existing beneficiaries will continue to benefit from the trust as intended.

Costs and Administration

The Act has introduced stricter compliance requirements, including new trustees’ duties and enhanced rights for beneficiaries. This has resulted in an increase in compliance and administrative costs.

It is important to assess whether the benefits of maintaining the Trust outweigh these costs. If the benefits are marginal, winding up the trust may be a more cost-effective. However, for larger Trusts with significant assets, the asset protection advantages in retaining the trust may outweigh the costs. 

Tax Implications

The tax implications of winding up a Family Trust can be significant. Distributing assets to beneficiaries can trigger taxable events, especially if the beneficiaries are tax resident overseas. It is important to obtain accounting and tax advice to understand the potential implications of either keeping the trust or winding it up.

Alternative Solutions

Before deciding to wind up the Trust, consider the alternative solutions available. For instance, it may be possible to amend the trust deed, change the trustees, or adjust the terms of the trust to better meet the needs of the beneficiaries. 

The decision to wind up a family trust should not be taken lightly as Trusts continue to serve as a useful and valuable ownership structure. Seeking advice from professionals can help navigate the complexities involved and ensure that the appropriate steps are taken. 

For advice and help with trusts and asset planning matters, contact Renee Jensen on 09 306 0629 or @email or Sayuree Ram on 09 985 2526 or @email