Published: Mon, Mar 1st, 2010 by John Stirling
The benefits to you of having a Family Trust
We know that you work hard over the course of your lifetime to accumulate your assets – your family home, your investments, your vehicles, perhaps your holiday home. How can you have the assurance and peace of mind that after your death, your hard earned assets will go where you really want them to go? Your Will may provide for your assets to be left to your children or other family members, but after your death, you have no control over how well these assets are protected. They could be vulnerable to potential claims by your children's creditors, spouse or partner.
By setting up a Family Trust many of these risks are reduced or eliminated. Your Trust Deed will specify your specific beneficiaries and after your death, the trustees of your Trust will ensure that it is only your beneficiaries who benefit from the assets in your estate.
Property (Relationships) Act 1976
The rationale for forming a Family Trust has changed over the years. Twenty years ago, the predominant reason for establishing a Family Trust was to minimize the cost of rest home care. However, this is no longer as certain as it once was. A much more prominent rationale for establishing a Family Trust is now due to the changes in the Property (Relationships) Act. The Act has sought to bring more fairness in the distribution of assets in relationships, by introducing an "equal division rule" for relationships of more than 3 years. This has dramatically increased the potential for claims by de facto partners and spouses.
We believe that a Trust is one of the primary ways to be assured that upon your death, the assets you have accumulated during your lifetime would not be under threat as a result of your children entering into any unsatisfactory relationships.
Another important rationale for establishing a Family Trust, particularly for business people, is creditor protection. The prospects of a Trust being attacked by a creditor in New Zealand is remote if you are simply protecting your assets against any future potential liabilities that may arise, which are neither existing nor contingent.
Other advantages of a Family Trust
There are of course other advantages to establishing a Family Trust. These include:
Potential taxation benefits such as income splitting advantages; potential estate duty savings; and the current tax rate of 33%.
A Family Trust will also enable you to ensure that a large degree of control over your assets (together with any income they provide) is still in your hands including the distribution of those assets.
A Trust will also help to ensure there is control over your assets after your death and protect your estate from spend-thrift children.
A Trust may help you to minimise the cost of rest home care – however, as mentioned above, this is not as certain as it once was. Due to changing policy at Work and Income, putting assets into a Family Trust will not necessarily ensure that these assets will not be taken into account when the cost of rest home care is assessed.