In New Zealand, it is very common for family property to be held in a Trust. This has been an effective way of protecting family assets, but more and more clients are asking whether they still need their Trust. With recent changes to Trust law through the Clayton and Pugachev cases, residential land withholding tax forms, land transfer tax statements, and the Trusts Bill, Trusts can sometimes feel like more maintenance than they are worth. However, there are some situations where it is smart to hold onto your Trust. A few common examples are:
Trusts are liable to pay tax on income, which can be either an advantage or a disadvantage, depending on your situation. While we can flag these issues, we recommend that you discuss your tax situation with your accountant.
If you work in a role that places you in any kind of financial risk – for example, property developers, company directors, or school principals – you can benefit from the protection that a Trust provides. If properly set up and maintained, a Trust can provide asset protection against any personal claims that may arise as a result of such roles.
Protection Against Relationship Property Claims
If properly set up and maintained, a Trust can protect Trust assets against claims that may arise out of the breakdown of a relationship. While couples often prefer not to think about separation, many of our clients set up trusts to protect the family assets in the unfortunate event that one of them dies. If that occurs, and the other partner enters a new relationship while the Trust is still intact, the Trust assets can be protected against any claim by the new partner.
When you have a Trust, you have more control over when and how your children receive their inheritance. By using the Trust to distribute the inheritance, you can leave your Trustees with the discretion to assess when to distribute the funds. This is another way or protecting the assets from the claims of others (for example, if your child is going through bankruptcy or a relationship separation) or receiving the funds at a time that is simply inappropriate (for example, if the child is too young to manage the funds).
Although Trusts do require annual administration, the benefits for some clients outweigh the time and effort of maintaining them. However, for other clients there are no real advantages to retaining a Trust. Get in touch us if you would like to discuss your Trust and how we can help make Trust maintenance easier for you.