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Friday, November 20, 2015 - 03:16
Castle wall for a purpose

It is the time of year for annual trustee meetings and reviews. “It is no surprise, in light of the Davis Tax Committee’s report, that every client I have met with to date has asked the question: Should I keep my trust in place or terminate it and run a mile?” says Michelle Cliff, Client Services Manager, Maitland.
To answer this question, it is important to understand why the trust was created in the first place. Some people have benefitted from a family trust their entire lives or have had one created for their benefit by their parents, grandparents or great grandparents. The trust simply is and always has been part of their lives. “Whilst it is always difficult (and intimidating) to become involved in a trust structure many years down the line without being privy to context and circumstances surrounding its creation, it is vitally important to understand why the structure is in place. If the trust was created for the right purpose, there is no need to panic and certainly no reason to terminate it,” she says.
There are many reasons for creating a trust. They can stem from a situation of family strife, charitable intentions, or corporate business transactions. The list is endless. “However, I would like to focus on the two reasons most relevant to the clients I have seen of late, that being creating a trust to preserve family wealth and to protect family assets.”
Let me take you back to the days of kingdoms and castles. Picture yourself as a stable hand. You work exceptionally hard tending to your duties for one Master your entire life. Your Master is now of such an age that he no longer hunts nor travels. He has no need for his horses nor a stable hand. Being the kind Master he is, he acknowledges your hard work, loyalty and dedication and rewards you with a few horses, a variety of seeds and a plot of land. Here begins the building of your kingdom. You, your wife and your children move to the plot of land assigned to you. You and your family work tirelessly to build your modest dwelling, plant and sow your seeds and within a few years you are able to comfortably live off your land. Over the next few years your kingdom moves through phases of growth and depletion; there have been wars, droughts, floods, but thankfully mostly times of abundance. Your kingdom has now grown to a sizeable offering and one that can, if correctly preserved, serve your family for generations to come. You can offer your children opportunities that were never open to you. You realise though that times have changed since you were a boy, wars are raging all over the country, kingdoms are being pillaged and you need to protect your kingdom. You begin by building a high and solid wall around your land and place guards at strategic points. This serves to ensure that any unwelcome visitors remain outside of your kingdom.
By this stage your children have married and built their own dwellings on your land. They are all involved in the family kingdom and each have very different ideas as to how the family kingdom should be run. There is great potential for family strife as there are many different personalities, needs, ideas and wants. You have protected your kingdom from the outside, now you need a way of protecting your kingdom from the inside. You decide the best way to do this would be to have someone objective appointed as an advisor to the family. Each family member can present their ideas to this advisor, they can obtain expert advice, be provided with assistance in family disputes and most importantly have someone who will always act within the best interests of the family unit as a whole.
Now you can rest in peace, knowing your kingdom, and therefore your family, are protected from both the outside and the inside.
“As you have by now realised,” she says, “your kingdom is your wealth, the assets you have built up over many years.” The wall you have built is the trust you have created within which your assets are housed and protected from third parties such as creditors. The guards and advisor you have appointed are your trustees. There is absolutely nothing wrong with what you have done in putting the above in place. You have tried to secure your assets, protect them. You have appointed strategic people who have the expertise to provide advice and assistance to your family to ensure that protection remains in place. You have secured your assets and assisted as far as possible to ensure your family unit remains strong and unified. You have not tried to hide your assets from the King of the land, he is most welcome to come and have a look around, inspect your land, buildings and records.
“The above illustration is no different to what we do for our clients today,” says Cliff. “If you created your trust in order to protect your assets, preserve your wealth and provide resources to assist your family in making future decisions, you have absolutely no reason to worry. You have created your trust for legitimate reasons and you should most definitely not be thinking about terminating it. Your trust is a genuine structure with a solid legal purpose. Think very carefully before you demolish the walls around your castle - remember why you put them up.”

Copyright © Insurance Times and Investments® Vol:28.11 1st November, 2015
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