A family may protect their assets through a descendant’s trust. This protects your family from others who may attempt to claim title to your assets. In this article, we break down what a descendant’s trust is, and how it can benefit your family.
What actually is a descendant’s trust?
Death is inevitable. When someone dies, a will is usually used to distribute their assets. However, another option is the establishment of a descendant’s trust. This trust ensures that your assets may only be passed to direct descendants. The beneficiary in this trust doesn’t receive the assets outright, rather, the trust holds their entitlement. A spouse or friend is unable to access any asset held in the trust. This is because they are not an immediate descendant of the trustee. This protects your family, and their assets.
Why would I need a descendant’s trust?
In today’s society, it is a fact that over 50% of marriages end in divorce. When this happens, under equitable distribution, both parties generally receive half of the overall assets. A descendant’s trust ensures that your son/daughter in law is unable to access any asset held in the trust. Furthermore, it is important to consider a descendant’s trust if your son/daughter in law has any of the following characteristics;
- Excessive spending.
- Poor money management skills.
- Difficulty holding a job.
- Gambling habits.
- Addictions.
- Children from previous marriages.
The trust will protect your assets from any of these factors. The in-law will be unable to access the assets, ensuring your child is secure financially.
What are the major benefits?
As discussed, descendant trusts are designed to keep your assets within your family. This creates several benefits, including;
- Children and grandchildren are the only ones who may use the trust assets.
- The assets are never available to your son/daughter in law, either in marriage or in divorce proceedings.
- Creditors are unable to access the assets.
- The trust terminates at your child’s death. Your child’s descendants receive the remaining balance.
Furthermore, inheritance retained in the trust is taxed at a lower marginal rate. However, the ATO heavily monitors trusts, and the main purpose should not be deliberately avoiding tax.
Who becomes the trustee?
Your child becomes the initial trustee of a descendant’s trust. Furthermore, they may choose to share this responsibility with an independent co-trustee, or they may resign at anytime. If your child is sued or is divorcing, they are automatically removed as a trustee to protect the assets. The successor trustee may be another child, or a financial institution. Once the divorce is finalised, or the legal issues are resolved/terminated, the child is reinstated as the trustee.
Final thoughts
A descendant’s trust is a safety net for your family, particularly if you have significant assets. In short, it ensures that the assets held in the trust are unable to be accessed by others, protecting your children in the event of lawsuits or divorce. If you have further questions or wish to establish a descendant’s trust, an estate planning lawyer may assist in your enquiries.
