Frequently Asked

Key Elements of a Trust

The Settlor

This is the person who sets up the trust and is usually also the person who currently holds the assets that will be transferred to the trust. In other words, this is you. There may be more than one settlor, in the case of a Family Trust, a married couple may both be settlors.

The Trustees

The trustees are the people who are responsible for administering the trust. They must make sure that the wishes of the settlor (as set out in the trust deed) are carried out. The settlor is normally one of the trustees of the trust.

The Beneficiaries

These are the people who may benefit under the trust. With a Family Trust, the beneficiaries will normally include every member of your family (including possible future family members such as future grandchildren).

Frequently Asked Questions

Does a lawyer have to set up a trust?

No. However, setting up a trust can be a complex matter, it should be dealt with by a specialist who has experience in Trust creation.

Should I gift all of my assets to a Family Trust?

This decision should be made based on the needs of the Settlor and the Beneficiaries. You can lend the Trust funds and forgive the debt over time.

What effect does a debt owing have?

The debt owing is still available to creditors or Inland Revenue.

Do I have to pay Gift Duty?

No. Gift duty does not apply to gifts made on or after 1st October 2011. However, The appropriateness, or otherwise of forgiving outstanding debts, or otherwise making gifts will depend on the circumstances of each individual.

Risks of Trusts

If a trust is not set up or managed well, there can be considerable inconvenience and cost.

You can also run the risk of having the trust declared a ‘sham’, which would mean that the assets are not really the trusts but are in fact still yours. If the trust is a sham you may lose all of the advantages that you were hoping to gain from it and you may be penalised as well.

Once you put your assets into a trust you no longer personally own or control them. Instead, ownership passes to the appointed Trustees who must act under the terms of the trust deed in the best interests of the beneficiaries.

Forming a trust is a big decision. If you are going to form one, make sure that it is established properly for the right reasons and managed well.

Residential Care Subsidy

In the future Superannuation eligibility may also be means tested.

Transferring assets to a trust may avoid those assets being tested for residential care subsidies. If you and your partner give away assets, they may still may be counted as assets in your financial means assessment.

You can gift up to $6,000 within a 12 month period in each of the five years before you apply for a residential care subsidy. For example, if both you and your partner apply for the Residential Care Subsidy then gifts of $6,000 each per year can be excluded.

Gifts of more than $27,000 per year, per application* made before the five year gifting period, may be added into the assessment (For couples, gifting is $27,000 in total – not per person).

This means it is of benefit to start transferring assets to a trust as soon as possible.

Relationship Property Claims

If you transfer your assets into a Family Trust before you enter into a relationship, your new partner will have no claim on these assets if your relationship ends.

However, if you are already married, or in a de facto relationship then it is likely that the majority of your assets will be classed as ‘relationship property’.

In New Zealand, there is a 50-50 presumption when it comes to splitting the assets when a relationship ends. However, any assets that you have already transferred to the trust belong to the trust, and do not form part of your personal assets. This means that those assets are protected from the 50-50 division of assets in New Zealand law, but you need to note that a Family Court may on the breakup of a marriage or civil union disturb a trust settlement and make an order for the benefit of the parties to the marriage or civil union or for the benefit of any children of the relationship.

Relationship property issues are also relevant where you have left assets to your children. If your child enters a relationship then those assets you have left to them may be available for claim by their future partners. If the assets are in trust or consist of a debt, which is loaned by the trust, your child can enjoy the benefit of those assets without having to worry about relationship property claims.

What are the 3 certainties needed to create a valid trust?

For a trust to be valid, the settlor must consider three certainties before settling:

1. Certainty of intention: This means that settlor must have a clear and unambiguous intention to give up and transfer asset with genuine purposes. If the Court found that the settlor’s intention is not clear or misleading, the certainty of intention will be breached and the trust will become invalid (As shown in Official Assignee v Wilson & Clyma).

2. Certainty of subject: To satisfy this requirement, the subject matter in the trust should be clearly named and transferred from settlor to trustee. It could be any property, asset, cash, bank account, share or dividend.

3. Certainty of object: This means that the trust must have one or more named beneficiary and trust will be there for the benefit of beneficiary. If there is no clear beneficiary, then the trust will be created for no purpose and thus, it will be invalid.

It is important that settlor needs to make sure to satisfy all three certainties before settling a trust.

What is a Family Trust?

A Family Trust is an entity, which holds and owns property for the benefit of your family.

This allows you to transfer the ownership of property and other assets out of your own name so that they can be protected for a variety of reasons, whilst still maintaining control over them.

Income Tax

There may be tax advantages in placing income-earning assets in a trust.

The income earned by a trust is taxed at 33 percent, which is higher than the rate imposed on companies. However, a trust can allocate income to beneficiaries, such as children who may be on a far lower tax rate which will result in significant tax savings.

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