Reasons for Setting up a Family Trust
Trusts are generally used to protect any current and future assets from claims in different circumstances. When a family trust is established, settlor settles property into the trust, and the trustee(s) will own and manage the assets for the benefit of beneficiaries (family members you nominate). A Trust Deed will provide the rules for how the Trust will be administered and managed.
Here are some of the reasons for setting up a family trust:
A settlor, having settled property into a trust, can undertake new business ventures without having to worry about putting family assets at risk.
A trust allows a settlor to protect selected assets against personal claims from creditors and other parties. This is particularly helpful in the unfortunate event that the settlor runs into financial difficulties or a business venture fails.
The trustee(s), depending on the powers granted by the Trust Deed may also manage the assets and generate trust income for the benefit of beneficiaries. This is particularly helpful if the beneficiaries are unable to manage their own affairs.
There can also be potential tax liability benefits. Income will either be taxed in the hands of the trustee as trustee income or be taxed in the hands of the beneficiary if a distribution is made. Depending on the beneficiary's age and income, a family with property settled in a trust may be able to achieve minimisation of tax liability.
Future Residential Care Benefits
Under the Social Security Act, a family elder may be able to receive a subsidy to help with residential care payments, should it be required. To qualify for the subsidy the applicant's cash savings and property assets must be below certain thresholds, any assets over that amount will go towards rest-home fees.
Although gift duty has been abolished in 2011, a gifting program is still relevant for this purpose. There is still a limit on the amount permitted to be gifted to the trust per year.
Therefore, there are still significant benefits to be obtained in this area by transferring your assets to a trust.
To Keep Family Property within the Family
Trust can be used to manage collective family land and buildings to protect them from claims in the event of failed marriage or failed relationships.
Under current New Zealand law, relationship property will be divided equally in the event of separation if the relationship has been in existence for 3 years or longer. If the settlor has certain assets he or she wants to pass down to the children and not their partner or the children's future partners, the settlor may protect it from becoming relationship property by transferring it to the family trust.
Succession / Estate Planning
Having assets transferred to a trust before death can assist with estate administrations. A trust can help avoid unwarranted claims on your estate from former partners and dependent relatives when you pass away.
The above article is intended to provide brief and general information only. The contents contained in this article are not exhaustive on the topic in question. They do not constitute legal advice and should not be relied on as such.