Wealth
Trusts and estate plans – know the difference
Trusts and estate plans are often confused but, writes ALICE McNAMARA, they have completely different purposes and work in critically different ways.
Although trusts and estate plans are the main legal structures for transferring assets to beneficiaries, knowing the key differences can benefit your individual situation or circumstance.
A trust is a legal entity which holds and distributes assets and other decisions during your lifetime according to certain conditions.
The individual who creates the trust, known as the “grantor”, can establish these conditions largely at will to give the trustee the authority to manage, invest, and safeguard trust property and income after your death.
There are five common types of trusts in Australia, and it’s essential to know the differences so you can decide which is best suited to individual situations:
- Fixed Trusts provide for a specific proportion of assets to be distributed to specific beneficiaries.
- Discretionary Trusts give trustees the power to decide when, how much, and to whom to distribute assets.
- Hybrid Trusts have characteristics of both a fixed trust and a discretionary trust, giving the beneficiaries the best of both worlds.
- Testamentary Trusts are established per the deceased’s will, so it only comes into existence upon their death.
- Special Disability Trusts are established to help immediate relatives and guardians provide for the future family members who have a disability.
Forming certain types of trusts has the advantage of avoiding the probate process, as in some cases it may protect your family from creditors.
Trusts also allow you to limit when beneficiaries have access to your assets.
A trust is only one element of an estate plan. A comprehensive estate plan includes not only a trust, but also a last will and testament, beneficiary designations, and a power of attorney.
It is typically a set of legal and financial documents that accomplishes several important goals, and includes a strategy for how assets should be distributed after you die.
These assets can include everything from home and savings accounts to car, furniture and other personal belongings.
It’s important to note though, that your super balance and insurance proceeds are not part of your estate by default and need to be considered separately.
If you die without any will, trust, or estate plan, your assets may not be distributed the way you wish.
Additionally, as your life changes, it is essential to review and update the estate plan accordingly.
Seeking legal assistance for estate planning is critical to ensuring plans line up with goals and circumstances.
Alice McNamara is part of the Cameron Rogers team skilled in guiding clients through the process of transfer of wealth. Call 5445 1213 or visit cameronrogers.com.au
