Why do you need a Trust?

  • A Family Trust can be a useful scheme to protect your larger assets such as a home, bach, rental property or shares in a business from creditors in the event of a business collapse. Particularly useful for self-employed people.
  • Protection from relationship property claims by a departing spouse or de facto partner.
  • Trusts also remain in place after your death and are therefore a useful estate planning tool.
  • To hold assets for incapable beneficiaries
  • It allows you to pass your wealth in to trust while you are alive and to eliminate a challenge that might otherwise be made if you left your wealth to be distributed pursuant to a Will. That is if you forsee that at the time of your death your Will might be challenged by a disappointed beneficiary, then you may be better to pass your wealth to a trust now to avoid such later claims.  A Trust allows you  to retain control but set up a framework for eventual distribution to beneficiaries on your terms.

A Family Trust can not be treated in isolation but rather must be considered as part of an estate planning regime.   Accordingly you should also have a Will (which amongst other things may appoint a replacement trustee upon your death) and a list or “memorandum of directions” to your fellow trustees so that in the event of your incapacity or death the Trust may be then administered, and funds and income eventually distributed, in accordance with your instructions.

A few tips on Trust formation:

  • If you are having an independent trustee then set up your own trustee company for this purpose with you as the director/s. Saves you running around town to get your accountant’s signature every time you sign a loan document.
  • Make sure you complete a Will and Memorandum of Wishes as part of the Trust’s formation. Appoint replacement trustees in your Will.
  • Decide on a gifting arrangement. Talk to us about the options.
  • Ideally get your accountant to prepare annual accounts and keep all paperwork in order. Keep a record of resolutions (decisions made by the trustees). Get an IRD number for the Trust.
  • Make sure that your Trust is a flexible document allowing the removal and addition of beneficiaries.
  • Be very careful when you have trustees who are also beneficiaries. When signing contracts including bank loans the trustees (who are beneficiaries) will be personally liable unless there is a specific clause that is placed in the loan or contract document to limit the liability of the signing trustee to the assets of the Trust. Banks hardly ever address this issue unless it is raised.
  • If the Trust is to hold income earning assets, or may now or in the future have income earning possibilities, it is essential to discuss matters with your accountant, before proceeding with the formation of a family trust.