If you have a sizeable estate that you've built up over the years through hard work or good fortune, you will want to ensure that it is protected going forward. If you want other members of your family to take advantage of the resources, you will need to set up a tax-efficient and legally protected vehicle to hold these assets. There are various ways to accomplish this, but you will definitely want to ensure that these assets are protected should one of the people involved file for bankruptcy. As this could make matters very complicated very quickly, what is the best way to approach this?

Set Up a Family Trust 

You should think about setting up a discretionary family trust. This can be an involved process, but it is well worthwhile as, so long as the deed document is properly drafted, insolvency may no longer be an issue.

When a family trust like this is set up, it'll be controlled by a third party trustee, who can be neither the original owner of the assets or a beneficiary. This can be a great way to protect the assets from tax as a trust is typically outside the scope of capital gains.

Tax Benefits

When a trust is set up, the assets can be passed down through family generations or can be distributed to named beneficiaries. These individuals will need to pay tax on their windfall, but it will be based on their personal tax bracket. Obviously, this is tax efficient as if the owner were to withdraw the funds at what would almost certainly be a much higher tax bracket, there would be fewer resources to distribute.

Insolvency Protection

When an individual becomes bankrupt, creditors will try and secure as many of their assets as possible for distribution. However, assets that are held within a discretionary trust are protected. The trustee in charge of the said discretionary trust might, however, opt to cut off any distributions to the affected individual so the legal team working for the creditors could not access them.

In this case, it's important to remember that the trustee in charge of the discretionary trust is the de facto legal owner of the assets. However, this does not mean that a bankruptcy court can access these particular funds should the trustee themselves become bankrupt.

Legal Assistance

Obviously, this can be a tricky area of the law, and there are many rules and regulations to follow. This is why you should engage a family law firm if you want to protect your discretionary trust as effectively as possible.