Trust Suitability Guide

What you will need

• Who depends on you? Tick all that apply (checklist): Children under 18; a dependant with a disability; children from different relationships; elderly parents; nobody.
• What do you own? Tick all that apply (checklist): A home; a farm or family land; a business; investments or savings; life cover payable to children; none of these.
• Why are you thinking about a trust?: Protect children's inheritance; support a dependant with a disability; keep a home, farm or business together; save tax; someone is selling me one; not sure.
• Do you have people you trust who could act as trustees for many years? (yes_no_not_sure)
• Could you afford yearly trustee, accounting and tax costs? (yes_no_not_sure)

How it works

fit_score = (children under 18 ? 1 : 0) + (disability dependant ? 1 : 0) + (blended family ? 1 : 0) + (farm, land or business ? 1 : 0) + (significant inheritance, e.g. home or life cover payable to children ? 1 : 0) + (trustees_available = yes ? 1 : 0) + (can_afford_costs = yes ? 1 : 0). OUTCOME A (fit_score 0-1, or nobody depends on you): 'A trust is probably not needed. A valid will and up-to-date beneficiary nominations may be enough.' OUTCOME B (children under 18 or a disability dependant, and no business, farm or land): 'A testamentary trust written into your will may be the simplest fit. It only starts after your death and costs little to set up now.' OUTCOME C (fit_score >= 4 and farm, land, business or blended family): 'A living (inter vivos) trust may be worth discussing, alongside a testamentary trust.' Always add: disability dependant = 'Ask about trusts designed for a person with a disability, which may be taxed differently.' reason = save tax = caution 'Trusts are not a simple tax saver: they pay tax at higher rates than most individuals on income they keep, and loans to trusts can have tax consequences.' reason = someone is selling me one = caution 'Get an independent second opinion from an estates attorney or fiduciary practitioner before signing.' trustees_available = no or not sure = 'Choosing trustees comes first; being a trustee is a real legal responsibility.' can_afford_costs = no = 'A living trust has yearly costs; a testamentary trust may suit better.' Questions to ask: What type of trust and why? What will it cost to set up and each year? Who are the trustees and is an independent trustee needed? How will it be taxed? What does it change about my will? No outcome is presented as advice.

What you get

• What your answers suggest
• Things to be careful of
• Questions to ask an estates attorney or fiduciary practitioner

What it means

• A good will and correct beneficiary nominations often do the job without a trust.
• A testamentary trust in your will is the most common way to protect an inheritance for young children so it is managed until they are older.
• A living trust can help keep family assets together, but it has real costs, tax and trustee duties, so get advice first.
• Trusts are taxed at higher rates on income they keep, so saving tax alone is rarely a good reason.
• Being sold a trust is a reason to get an independent second opinion before you sign.

Next step: Want help interpreting this? Speak to an estates attorney or fiduciary practitioner, and a tax practitioner about how a trust would be taxed.

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