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Six Simple Steps for Setting Up a Trust in Australia

In Australia, trusts are used to shelter a person’s assets. The person setting up the trust is called a “Settlor.” Discretionary trusts are some of the most popular types of trusts out there, and they’re not too difficult to set up. You basically have three parties involved in the transaction – you (the Settlor), the Trustee (the party who manages the trust), and the beneficiary (the party who receives the benefit of the trust). Here’s how you get things set up:

Step 1: Decide On A Purpose

Make a decision about the purpose for the trust and what the initial assets will be. Since trusts require a contribution to get started, you’ll have to put up some real property, money, or personal property to open the trust. Don’t worry about how much to put in at first. You can always make additional contributions once the trust is set up.

Step 2: Name Your Trustee

Make sure the person you name as a trustee is trustworthy. This is the person who will be managing the assets in the trust. He should be someone you can trust, is good at managing money and property, and is reliable. Do not name yourself. You can’t be the trustee and the Settlor. It may invalidate the trust contract – prompting a court to challenge the validity of it. In general, courts in Australia see this sort of thing as a “sham trust,” since trusts inherently have three distinct parties, not two.

Step 3: Name The Beneficiaries

You must have beneficiaries for the trust to be valid. The beneficiaries may be anyone, but keep this in mind: Beneficiaries have no legal right to any of the trust assets unless those assets are distributed by the Trustee.

Usually, Trustees and Beneficiaries are kept at an “arm’s length.” This means that the Trustee and the Beneficiaries generally don’t know each other, don’t have a prior business relationship with each other, and do not have an incentive to benefit each other – neither has an equitable or any other type of interest in the other party.

The Trustee is charged with acting in the best interest of the Beneficiary, but he must maintain objectivity and the principle of Prudence. In other words, the Trustee must manage the assets of the Trust in the same way that any prudent man would – eliminating unnecessary risks with the assets, and minimizing other adverse risks as best as possible while preserving the integrity of the assets and the Trust itself. With that said, Trustees have a lot of discretion when it comes to management and distribution of assets which are only limited by the Deed of Settlement.

Step 4: Set The Contents of the Deed of Settlement

It’s up to you, as the Settlor, to outline the basic functions and limitations of the Trustee. You must authorize which restrictions, if any, are placed on the Trustee. This includes any restrictions on asset management and distribution.

The Deed should specify the original trust assets, name the Settlor, the Trustee, and the Beneficiaries. It must also specify the rights and duties of the Trustee, how the Trustee may be replaced (if necessary), and set the rules for the operation of the Trust’s bank account.

Because all Trusts must comply with local and national laws, it’s best to have an attorney help you draft the Deed. That way, the Trust’s integrity can be maintained over time and you won’t run into problems with enforcement of the Trust contract.

Step 5: Sell Your Assets

You must get your assets into the Trust to make it valid. The way you do this is by selling your assets to the Trust using a written bill of sale. Then, have a lawyer help you draft a document to forgive all indebtedness to you by the Trust. This way, the Trust won’t have to repay you for any of the assets of the trust that you sell to it (since a trust often starts out with no money or property, this step is essential so that an actual transaction takes place and carries validity in the eyes of the law).

Step 6: Make Use Of Leases

To use the property, as the Settlor, you must have this property leased to you by the Trust. The Trustee must approve the lease for you to use the property, but often this isn’t a problem. As long as there’s a legitimate reason for the lease, it will be legally valid.

For example, you may sell your home to the Trust, but you may want to continue living there. You would have to lease the home from the trust in order to remain in the home.

Helen Akin is a financial advisor with several years of experience. In her free time, she likes to share advice with others by blogging on various websites. To learn about income protection and much more, visit the experts at Wealth Smart.

When Do I Need Mortgage Insurance

Knowing the correct time to get mortgage insurance can be a confusing, depending on whom you are and what you do for a living. The sole aim of getting this type of insurance is to make sure that you will continue to have the income to pay back your debts and loans when you are suddenly unable to work, similar to income protection insurance.

In some cases, if you purchase a new house with a deposit of less than 20 percent, the lender may have a requirement for you to be insured. This is because the lower the amount of money you have at the time you purchase the house can generate a weak signal in the ability for you to pay back the cash later on.

One thing to keep in mind is the fact that if you are insured, the chances of you being able to find a lender of your loan can be increased, along with the amount you can borrow. This is due to the fact that the lender will also have the risk of you not being able to pay back decreased as well, benefitting both side of the party.

However in some other cases, getting mortgage insurance may be something the borrower had decided to take out all on their own will. It could be because they are getting older and becoming more fragile, and is therefore concerned about their ability to repay back their debts. Another common situation is when the economic situation is gloomy and the unemployment rate is rising.

The price for taking out a mortgage insurance policy depends on several factors, including the amount you have borrowed and the expected time when your loan will be paid off. In most cases, the premium is charged once-only at the time when you take out your home loan. One very important thing at a lot of people fail to realise is that it also goes into the calculation of GST, but depending on where you live in Australia you may be able to claim stamp duty.

Regardless which situation you are in right now, there is nothing like having the worry of not being able to pay your bills being lifted off you. Chances are, getting mortgage insurance would be able to benefit you in some way or another right now.

The Significance of Insurance

Supposed you are critically injured could you or your immediate family pay for your hospitalisation, treatments, and medicines, pay your existing bills and provide the living cost for the family while you are still recovering, or if you can fully recover? This is the reason why Total Permanent Disability Insurance is very exigent.

Supposed you get involved in a car accident with three other cars and it was fairly proven that you were at fault; can you afford to buy yourself a new car instantly, pay for the repairs or replacement of the other three cars and pay for the medical bills of the occupants of the cars? If your answer is no, then Motor Insurance is indeed very crucial to obtain.

In case you get incapacitated and incapable of reporting for work, do you have other means of paying for your monthly bills and providing for your cost of living until you can get back to work? If not, then this is the wisdom behind taking Income Protection Insurance.

Supposed you get very sick and in need of immediate medical attention but the Public Health System has you waiting for a long, long time and you cannot afford to go to a private medical agency. Health Insurance is indeed very crucial at times like this.

Supposed your home gets broken into, your properties stolen, do you have the means of replacing such items, and pay for whatever damages such illegal entry may have caused? Home and Contents Insurance can really be a big help in this situation.

Supposed you are operating a business and then some someone is injured in your premises or gets involved in some complications while in your premises, do you have the capacity to pay for their medical bills and any probably litigation costs that may ensue? Public Liability Insurance is truly a haven when it comes to situations like these.

What if your business encounters financial troubles and you fail to settle a loan payment? Do you have other sources to pay off the surcharges, penalties or other pay for the other financial responsibilities of the company? Business Expense Insurance can come very handy at times like this.

If your life gets snuff out just like that, could your family afford to pay for your funeral, pay for other burial expenses, arrange for the settlement of your financial affairs and be able to live through their own means without you? If your answer to this is No, then Life Insurance is immensely crucial for you.

If you view insurance in the long-term context, you will find that it is far more beneficial, financially as well as for your well-being (peace of mind and less stress) to provide for these situations through insurance than paying for them when they arises. You cannot always be sure that you will have the cash or the financial capacity to shoulder such expenses as they arise.

Unless you are immensely wealthy or have a steady income from which you could source-out money to pay for these expenditures as they occur, you will have a hard time shouldering these costs at the moment they arise. Why hassle yourself when you could have peace of mind providing for situations which are likely to happen in the future at one time or another.