In the last issue of Citizenship by Investment we brought you an overview of trusts and their applicability to you finances and assets. Over the course of the next few issues we’ll be looking into different types of trusts and the variances and distinctions between them.
This time up we are looking at family trusts. Arabian values are built primarily around the family and so, in line with this, it is extremely pertinent to you that you maintain your finances with your family in mind.
A family trust is a simple, yet conversely, in its quirks a rather complex, legal process to hold, safeguard and maintain your family assets for the future.
A family trust can protect all or some degree of your and your family’s assets and money, simply because by nature of its existence it decrees that you no longer own them yourself, but the trust does.
All manner of assets can be inserted into the family trust, including your home, valuables, heirlooms and art, for instance, but also you can place cash into it. None of this means you’ll need to move home under any circumstance or even that you’ll lose your home in the future, nor does it mean that any other trust assets can be taken from the trust against your will by virtue of the fact that a family trust is there simply to protect assets for you and your family, both now and in the future.
Having a family trust can give you complete confidence that the assets you wish to leave to your loved ones are, indeed, left to them. It is a legally-binding and sensible, pragmatic way to cover your family and your assets.
How does a family trust work for you?
Whether or not a family trust is right for you is dependent on numerous variables. A family trust can help you protect your family’s assets in the event of ructions within the family unit, or if the family or a family member(s) encounters business problems. Also, it can prevent unwelcome, illegal claims against your estate, help to preserve the confidentiality of your business and monetary affairs and investments and structure your capital affairs effectively for tax.
When you first set up a trust, the rigours of it are detailed in what is known as a trust deed. You appoint trustees to ensure the trust operates as set out in the trust deed. You can assign yourself as a trustee, which will ensure you will have a say in the management and maintenance of the trust, but also can appoint anybody you wish to as a trustee – it surely does not need to be said here that appointed somebody you trust as a trustee is imperative.
What is involved in setting up a family trust?
As well as appointing the trustees, you also decide exactly who the beneficiaries of the trust will be. This can include yourself and your family obviously, but equally a close friend or associate and it can also include a charity you would like to donate some funds and/or assets to.
When setting up a family trust you normally give assets to the trust as one instant business deal. This effectively is a gift, given by you to the trust. Alternatively, though, you may wish to sell your assets to the trust at their full market value. Taking this option means that the trust now owes you a debt and you can give this debt away via an annual gifting programme. Your personal circumstance will be the single deciding factor here and your reasons for establishing the trust will ultimately decree whether you decide to give assets or sell assets to your family trust.
What should your lawyer do for you?
Various legal firms and individual lawyers can provide expert trustee services for the entirety of your family trust – making sure you understand the nuances of what is going on will be your responsibility, however, your lawyers owe you the duty of explaining it all clearly to you and de-mystifying the complex legal terminology attached to your family trust.
Your lawyers will, hopefully, ensure accurate records are kept, all taxation and other legal necessities are met, and all family trust documents are kept safe. Equally, they should also keep you informed of any legal and/or legislative changes that could affect your trust.
What kinds of costs would I be looking at?
A family trust can be a highly arduous and multifarious process and it can also cost a fair amount, particularly in initial outlay, but some maintenance costs will of course be incurred throughout the tenure of it.
Costs vary from lawyer to lawyer and law firm to law firm and obviously your own personal wealth will be a large factor. As an Arab, you may want to set your family trust up to be Sharia compliant as well as compliant within whichever country you hold or wish to hold a dual citizenship. There are of course, here, extra costs usually involved with lawyers.
It is not for us to advise you to either set up or avoid setting up a family trust, however, as a safeguard for your assets and cash, they can be very useful tools in terms of giving you peace of mind and clear distinction on where your assets may go, either now or down the line.
Much like any other legal procedure, they involve some costs, sometimes some serious costs, but these should generally be seen as necessary expenses rather than frivolous outlays.
We hope this article has achieved what it set out to by clearing up some of the grey area. As always with these kinds of things though, a lawyer is best consulted for any seriously unclear points.