Family Trust Basics

Estate planning involves considering how assets are to be passed from one generation to the next.  The usual components of an estate plan are Wills and Memoranda of Wishes.  A Will is a document that deals with an individual’s personal estate upon death.  A Memorandum of Wishes is a letter written to Trustees of the Trust to describe how assets are to be dealt with within the Trust.

A common mistake is not to link Wills and the establishment of a Trust.  As a accountancy and legal practice we often see individuals who have established Trusts but have not prepared new Wills to reflect this.  In this instance, they often have existing Wills prepared many years before that pass assets to spouses or children personally upon death.  Once a Trust is established such a Will is flawed for two reasons. 

First, you do not want assets to pass to surviving spouses or children personally when they can be directed straight into a Family Trust free of gifting restrictions.  That is, it is important to note that any bequests under a Will are not subject to gift duty. 

Second, given that a Family Trust Report has been established and the individual is seeking to minimise, their personal estate their Will has become redundant to a certain extent. 

The key to an effective Memorandum of Wishes is to provide the Trustees with instruction to consider the asset protection requirements of any beneficiaries when making distributions from the Trust. 

For example, if a beneficiary is in a relationship, the Trustees should consider the stability of the relationship and the desirability of passing assets through to the beneficiary individually, where they could be subject to a relationship property claim in the event of a separation.

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