4 do's and 6 don'ts with your family trust

There are plenty more, but here are the most obvious top ten -

First, the Do's

1. Engage an independent professional (accountant or attorney) as one of the trustees.

Otherwise you risk breaking down the firewall between your creditors and the trust assets.

2. Ensure that you are one of the trustees and also one of the beneficiaries.

You must be a beneficiary as you don't know what the future holds.

3. Get the trustees to formally appoint you as the director of the company owned by the trust.

Then you can run the company and you won't have to keep getting trustees' signatures every time you want to do something (although I recommend that you get their stamp of approval for major acquisitions and disposals).

4. Keep minutes of all decisions made by the trustees, usually in the form of a resolution.

Otherwise you risk breaking down the firewall between your creditors and the trust assets.

And now the Don'ts

1. Don't register the trust for tax. It should never earn taxable income.

If you do, you'll have to submit three nil returns each year.

2. Don't donate cash to start the trust, because you'll have to hold it in a bank account and it won't last long!

3. Don't make just yourself, your spouse and your children the benficiaries. Always add some others.

You could all be killed in a single accident and a trust with no beneficiaries forfeits its assets to the State.

4. Don't allow yourself to be fired by a majority of the trustees.

Read this clause carefully. You must be able to reasonably control who the trustees are without putting your own appointment at risk.

5. Don't do anything that would cause the trust to have to pay tax.

The income should be earned by a company owned by the trust as the tax rates are much lower.

6. Don't forget to appoint your replacement trustee in your will and also write a letter of wishes to the trustees.


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