How a Discretionary (Family) Trust works

Cassandra Townsend, Lawyer

We've recently received a number of customer queries about how a family trust works and how to set up a family trust through Cleardocs.

A family trust is a type of discretionary trust generally set up to hold a family's assets or conduct a family business. A family trust structure can assist in providing asset protection and certain tax advantages.

Information on family trusts and family trust elections are available on our website.

Below are some common customer queries about family trusts:

1.     Can the sole trustee of the discretionary (family) trust also be the sole beneficiary?

2.     Can a trust be a beneficiary under a family trust?

The Cleardocs Discretionary Trust deed is only suitable if you wish to name individuals, local companies or incorporated associations as beneficiaries. Maddocks does not recommend that trustees be named beneficiaries because distributions from one trust to another may raise issues in relation to the rule against perpetuities.

3.     Can I update the deed of my discretionary trust?

Yes, however Cleardocs does not have a product to update the deed of a Discretionary Trust. If you wish to amend your discretionary (family) trust, you should engage a lawyer to draft the changes. The lawyer will need to ensure the changes do not trigger the creation of a new trust and that the relevant variation process described in the deed is followed.

4.     Is the Cleardocs Discretionary Trust compliant with the Bamford ruling and/or change to laws regarding streaming provisions for trusts?

Yes.

o    The deed contains an appropriate definition of income - since 13 December 2004, Cleardocs deeds adopt a definition equivalent to taxable income ("net income" under taxation law).

o    The deed contains a specific power for the trustee to determine whether receipts are to be treated as on account of capital or income. All Cleardocs deeds since Cleardocs launched in 2002 provide this discretion.

o    The deed contains a specific power for the trustee to determine whether to adopt an alternate definition of income in respect of a year of income by signing a minute to that effect (or taking some other action). Again, this feature was introduced into Cleardocs deeds in December 2004.

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The importance of the relationship between professionals and their clients

 
Cameron Hemming, Business Development Manager
From my experience in business banking, at Cleardocs and in my own life, it seems that the most critical element to making decisions and getting them right is not necessarily having the best professional — accountant, financial advisor, lawyer — you can find. Rather, it is more about working with the person that will understand and guide you through your particular financial or commercial situation — both now and in the future. 
To some extent, the professional you choose is a life coach in that they provide the financial support that enables you to reach the next stage of your life.  A simple example is the major assets and decisions that most people encounter along the way: First Job — First Car — First Investment — First House.  Because these financial decisions play such an important part in our life, it makes sense that your relationship with your adviser is paramount.
For a professional to provide you with the best possible advice and support, they have to be intimate with your background, what drives you and most importantly where you want to be in 1 year, 5 years ... This is only found through building a relationship with you.
If you look hard enough, you can generally find the answers you are looking for about buying that property or getting into that business. However, the question is whether it is the right choice for you at this stage in your life, both financial and personally?  This is where the professional who knows you and who you trust is the key.
The best advice I have received in terms of finding the right financial advice is to speak to as many people as possible, from all sides of life. This way you can learn about how other people make their decisions and why they choose a particular financial advisor, accountant or lawyer.
When you speak to your accountant, financial advisor or lawyer make a mental note to see if they are asking questions about you and what you want OR are they just providing you with a technical answer to your question?