Family Trusts: Preparation For Unanticipated Disasters
Recessions bring about all sorts of changes
Recessions bring about all sorts of changes. For example, in the legal world, frequently people stop purchasing houses, so lawyers direct out of conveyance work. Equally, money starts to get tight so people start to sue each supplementary. This of course means extra litigation work for the lawyers.
Recessions can also bring about some dramatic personal life changes. For instances, people can lose their job which in turn, creates monetary burden. Frequently, this hassle spills over into their individual associations. When this occurs, unfortunately some couples separate.
When a couple separate they usually divide up their assets. If their assets have been placed in a Trust the inevitable question arises: What happens to the assets in the Trust This question is of great importance because when a relationship breaks down, there can be a lot of fighting happening and frequently the only thing left standing is The Trust.
Prevention is Better Than Cure
First, before assets are placed in a Trust, all individuals should obtain good legal advice. This is absolutely essential because when assets are moved from an individual to a Trust, an individuals property rights are affected.
Secondly, the legal advice obtained by the parties will usually include a very strong recommendation for the parties to enter into a legal Property Relationship Agreement. Should a liaison break down after the assets have been transferred through to the Trust, this Agreement will become invaluable. The individuals will be saved a massive legal bill as they will not have to go to Court to fight over the assets.
Thirdly, an actual Agreement should be entered into between the parties. The Agreement, if prepared and executed, is likely to set out a variety of matters including an acknowledgment of what assets belong to each of the parties before those assets are transferred to a Trust. It may also set out what will happen to those assets when they are transferred through to a Trust should the parties ever separate.
Lastly, if an Agreement has been entered into by the parties and assets have subsequently been transferred to the Trust then the issue is pretty easy. This is of course providing the Agreement stated what was to occur should the parties ever split.
In the normal course of events what this means is the assets of the Trust are sold, loans are repaid and the balance of the sale proceeds are put into the Trusts bank account, ready for division between the parties.
Often at this point in time the existing Trust is made into one of the individuals own Trust and another Trust is set up for the other remaining party. So in effect, each of the parties ends up with their own Trust.
Then half the sale proceeds are sent to the new Trust and the other half of the sale proceeds simply remains in the existing Trust (which was previously turned into one of the individuals Trust).
Two is Better Than One
Its no secret that many smart people have two trusts. One each. Each Trust will hold its own assets and frequently a half share in the family home. Why have two Trusts rather than one If you have two Trusts you have the ability to deal with property that was solely your own before it went to the Trust. This could include family heirlooms.
Also, your own Trust can be the recipient of any inheritances you might receive, such as money from your own Parents.
Overall, having your own Trust means you can deal with the assets in the Trust as you and your Trustees wish. You can do this without the consent of your spouse (assuming they are not your Co-Trustee).
When Things Go Wrong
If the parties dont ever enter into a legal Agreement and cannot agree on what is to happen with the assets that are in the Trust, problems can occur.
When this occurs only the lawyers win. The trouble is, that fight costs lots and lots of money if it goes on for a long period of time. I'm not advocating that an individual shouldn't employ lawyers when and where they are needed. All Im saying is a little common sense needs to prevail in these situations.
But if you cant get an agreement, then what happens Well the matter just has to go to Court. Which means the Courts look at how the Trust was established, how the Trust has been run over the years, who has control of the Trust, what assets have been transferred to the Trust and what loans the Trust owes back to the individuals.
Other items can also come up for discussion but these are the points the Courts will look at. Once the Courts review the matter they may make a variety of Orders. These can include putting an unrelated person in to direct the Trust (act as a Trustee) as well making a financial award.
by: Paul Easton
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