Why Should You Have a Family Trust?
A family trust is one of the most effective modern tools for safeguarding property, preserving a family's legacy, and ensuring that children, grandchildren, and future generations continue to benefit from what parents and grandparents have built.
With a family trust, families can avoid situations where the assets of a deceased person are taken over by siblings or other relatives at the expense of the surviving spouse or children. For any individual or married couple with property they intend to leave to their children, establishing a family trust is an essential planning step.
A family trust is established through a notarial deed of trust. This document is prepared by a legal practitioner in private practice who is also a notary public, and it is then registered with the Registrar of Deeds. The deed creates the legal framework through which the trust will operate and through which trust property will be protected and managed.
"A family trust helps ensure that property serves the family line it was meant to protect, not the uncertainty that often follows death, debt, or divorce."
How a Family Trust Works
A notarial deed of trust identifies the trustees, who play a role similar to that of directors in a company. They manage the affairs of the trust and make key decisions concerning trust property. In a family trust, the parents are usually appointed as trustees, although trustees can also include grandparents or an older sibling, depending on the needs of the family.
The trust also has beneficiaries. In a family trust, these are usually the children, grandchildren, or future generations of the family. A trustee may also be a beneficiary. The trust deed governs the administration of the trust, defines the powers of trustees, explains how decisions are made, and sets out the process for appointing new trustees or replacing a deceased trustee.
Key Protections a Family Trust Offers
- Trust property is separate from the personal property of the trustees, even though trustees hold and administer it on behalf of the trust.
- Trustees may sue or be sued on behalf of the trust, but they do so in a fiduciary capacity rather than as personal owners of the trust assets.
- Where parents are trustees, they administer the assets for the benefit of their children as beneficiaries.
- In the event of divorce, trust property generally does not form part of the matrimonial property to be divided between the divorcing parties.
- Property held in trust is generally not subject to attachment to satisfy the personal debts of a trustee.
- When a trustee dies, trust property does not form part of that trustee's deceased estate because it belongs to the trust, not to the trustee personally.
This separation between personal ownership and trust ownership is one of the main reasons family trusts are so powerful. A trustee holds the assets only as a custodian and has a fiduciary duty to administer them in the best interests of the trust and its beneficiaries.
Family Trusts Compared With Wills
A will remains an important estate planning tool, but on its own it often offers less security than a family trust. Property owned personally by an individual can be attached during that person's lifetime for the recovery of debt. Even after death, assets forming part of the deceased estate may still be exposed to claims by creditors seeking payment.
Property held in trust is different. Because it is not the personal property of the trustee, it is generally insulated from claims against the trustee in an individual capacity. That protection can continue both during the trustee's lifetime and after death, allowing beneficiaries to continue enjoying the use and benefit of the property without the same level of risk.