Does a Family Trust Protect Your Assets?

A family trust can be a valuable asset-protection tool. But it is not a guaranteed shield.

The trust deed is important. So is the name in which the assets are held. But those things do not tell the whole story.

What also matters is who controls the trust, who benefits from it and how the trust has operated in practice.

Control matters

A trust can involve several positions. There is the trustee, the directors of any corporate trustee, the appointor, the guardian and the beneficiaries.

If one person controls all the important positions, makes every decision and treats the trust assets as though they are personally available, the protection expected from the structure may be reduced.

The structure should therefore be reviewed as a whole - not simply by looking at the trust deed.

Family-law disputes need particular care

Trusts can become especially complicated following a relationship breakdown.

This was seen in Kennon v Spry, where the High Court considered a family trust as part of matrimonial property proceedings.

The case does not mean every family trust will automatically form part of a property settlement.

It does show that a court may look closely at the trust’s control, the benefits received by family members and the way the structure has been used.

Avoid last-minute changes

Restructuring a trust after a dispute or creditor problem has emerged can attract attention.

This might include changing trustees or directors, transferring assets, amending the deed or altering the appointor and guardian positions.

There may be valid reasons for making these changes. However, they should have a clear purpose, be properly documented and be supported by appropriate legal and tax advice.

Changes made only after a problem appears may not achieve the intended protection.

Three practical ways to reduce risk

1. Review the control positions early

Understand who controls the trustee and who has the power to remove or replace it.

2. Keep proper records

Distributions, loans, asset transfers and major decisions should be documented when they occur.

3. Review the structure before problems arise

Do not wait for a relationship breakdown, creditor claim or other dispute before checking whether the trust still suits its intended purpose.

Asset protection is not about hiding assets or avoiding lawful obligations. It is about establishing the right structure, operating it properly and making considered decisions before difficulties arise.

A family trust may form part of that strategy. Its effectiveness will depend on how it is structured, controlled and maintained.