The use of a Family Trust can be a way to protect valuable assets such as a family home and manage their future use. Family Trusts may provide assets, protection from personal liabilities.
Here’s how a Trust might work for you:
You transfer the legal ownership of your assets to the trust while continuing to use and enjoy them. For example, if your family home is in a trust the home is owned and managed by the trustees rather than by yourself, however you may still live in it if that is what the trust documents state.
Reasons why people set up a trust
A few examples:
- You own a business and you wish to protect personally owned assets from risks associated with the business;
- To protect assets from relationship property claim;
- To manage the assets for a family member who you consider cannot manage their own financial affairs;
- To put conditions on how and when your assets are distributed after you die;
- To set aside money for special reasons, such as a child or grandchild’s education.
Sorted.org.nz (link) has an excellent guide to the pros and cons of setting up a family trust.
Setting up a Trust
The settlor is the one who establishes the trust and whose assets are transferred to the trust. There can be more than one settlor.
The trustees are appointed by the settlor/s to manage the trust’s assets. Often the trustees will be the settlors together with an independent professional advisor such as a lawyer, accountant or a professional trustee company. The settlor should not be the sole trustee. Trustees administer the trust for the benefit of the beneficiaries.
The beneficiaries are the only people entitled to benefit from the trust’s assets. The settlor/s can also be a beneficiary, but not the sole beneficiary.
The trust deed is the founding document of the trust. It names the trustees and the beneficiaries and sets out the relevant parties’ rights and obligations.
You can find out more information about Family Trusts through the New Zealand Law Society (link).
Setting up a family trust can be quite technical, so we suggest getting legal, and sometimes accounting advice. Those professionals can advise on how to structure your family trust and how any gifting might proceed. Even though the cost of using an expert might seem quite high, it may cost a lot more if things are not done correctly and thoroughly from the start.
If you’d like to talk to one of our friendly lawyers about trust formation then give us a call – 09 267 2700 or contact us