How to set up a trust fund in Australia?
A trust fund is an arrangement between two or more people under which property or money is contributed and held in trust by one person (the trustee) for another (the beneficiary). Trust funds are usually set up to provide a long term benefit, such as looking after children based on the payment of a regular allowance. A trust is helpful when you want to provide care for someone but do not wish to hand over the money right away.
A trust fund must have at least one trustee who transfers money into the open trust account and controls the fund until it is paid out. If you are set on setting up a trust fund for your child, you may wish to name yourself the trustee so that you can ensure the money is spent in the right way. You can also choose someone you trust, such as a family member or friend, who should be well educated on your wishes and not sign any documents without first consulting with you.
A beneficiary is an individual who will benefit from a trust fund. The person named as a beneficiary has no say over how the money is managed or distributed – they only obtain their benefit once it has been earned from working within the trust. Beneficiaries are chosen by the person who sets up the trust fund. If you choose someone else, you need to ensure that the person named as a beneficiary is someone you trust to ensure they can manage any money given to them.
There are two primary investment strategies used when setting up a trust fund – fixed investments and discretionary trusts. Fixed investments require trustees to invest in specific assets that grow at a certain rate each year. However, if your trustee invests too much or little in these assets, growth will be affected, and your beneficiary may not receive their benefit in full when needed. With discretionary trusts, trustees decide how much money should be invested and which assets are purchased based on expected growth rates over time. It allows them to balance the risk of poor investments with the desire for good growth over time but can make it harder to predict how much your beneficiary will receive by the time they need it.
You must specify when your trust fund will end or what would happen if your child does not need all of the money at some point in their adult life. If you do not fix an expiry date, they may have to use additional funds from other sources to pay for further education or housing when you are still alive. You should choose a date that falls far enough in the future so that there is no chance you will die before your child needs all of the money in the account. However, you should not set the money to last so long that it will not be worth using by the time your child is an adult.
It would be best to consider how often and in what amounts distributions from your trust fund will occur. This includes any allowances for basic living costs and any additional amounts paid out based on educational or work success. It would be best to make sure there are enough funds in the account to provide this allowance without going below a pre-set minimum amount.
If you set up a trust fund, you can use an existing company (such as a bank) to accept and manage the money on your behalf. It is known as using a corporate trustee and means someone who works for the company manages the trust fund based on strict criteria agreed between you and them before it is set up. If there are any drawbacks with this arrangement, such as if your child cannot agree with the terms of their allowance or refuse to get a job after graduation, you may be forced to take legal action against them to ensure they abide by your wishes. If you choose to use an independent trustee, this is more likely to happen.