Trusts - family and funeral

People usually set up trusts so they no longer legally own their house or other assets, but can continue to use and enjoy them as beneficiaries of the trust. The most common types of trusts used by retirees are family trusts and funeral trusts.

Family trusts

Family trusts involve the sale to a trust of your house and perhaps other assets. They may be useful to:

• Protect assets against claims and creditors
• Help with tax planning
• Set aside money for special reasons, such as a grandchild's education
• Ensure your children, not their partners, keep their inheritances
• Ensure there are no unwanted claims on your estate.

However, the law limits the value of gifts that can be made to a trust each year. The current limit is $27,000 each year - anything over this attracts extra taxes. Therefore, a house worth $270,000 will take 10 years before it is fully transferred to a trust. Also, 'allowable gifting' under the financial means assessment for the Residential Care Subsidy is limited to $5000 per year in the five years before applying. Any gifting above this amount is included in the assessment.

Family trusts can be complex and time consuming to administer. It costs money to set them up and there are ongoing legal and accounting fees. It's worthwhile shopping around, as different organisations charge different amounts. You also need to think carefully about who will be the trustees, as they will be responsible for managing the trust properly.

You need to discuss these advantages and disadvantages with a professional adviser. See our checklist for financial advice. You could also talk to other retirees about their experiences of using family trusts.

Funeral trusts

Pre-paid funeral trusts are a way to pay your funeral expenses in advance. Funeral trusts worth up to $10,000 are not considered to be assets when Work and Income is assessing your eligibility for a Residential Care Subsidy.

Now, read about wills / legacies or enduring power of attorney. Or select another topic by using the main navigation menu.