Legal Tip 353: Preventing someone from Benefitting from a Trust

Discussion in 'Legal Issues' started by Terry_w, 31st Jul, 2021.

Join Australia's most dynamic and respected property investment community
  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Many people want to set up trusts in such a way that certain people cannot benefit. Usually these are ex-spouses. That is easy enough to do you can just make sure they are not a beneficiary or you could make it more certain by making sure they can never be a beneficiary by specifically excluding them.

    But this won’t stop a beneficiary receiving a benefit and then making a gift to that person.


    Example

    Marge is preparing her will and she wants to leave 1/3 of her assets to a trust for her daughter Maggie. Marge’s ex-husband is a drug taking virologist and she is worried that if the trust is set up in the usual way Homer will be able to benefit by being a beneficiary due to being a parent of Maggie.

    So Marge excludes Homer so he can never be a beneficiary.

    But then she worries that Maggie is easily manipulated and trusting so if her father asks for a loan or a gift Maggie might make available funds from the trust for his. Homer might then use the funds to conduct science experiments with this money.

    One potential next step is to make someone else as trustee so Maggie cannot make the decisions. If Maggie wants money she would have to ask the trustee. The trustee can ask Maggie what the funds will be used for an drip feed her trust funds.

    Maggie could then lend or gift these moneys to her dad, but at least there will be some controls in place. If the trustee is a relative, they would perhaps be more likely to give in to Maggies requests for funds. If a non-relative they are going to be charging to be trustee so there is an additional cost but they might be a more stricter trustee.

    It’s a question of how far Marge wants to take it, costs, and her hatred of virology.
     
    craigc and Tyla like this.