Trusts

Need to protect your assets or require a Trust as part of your business?

We specialise in this area.

Weston & Associates are experienced in all types of trusts, it’s worth talking to us first to look at your financial structure and assets to see whether you actually need a trust.  Or that the one you have is meeting your needs.

Family Trusts

People usually set up a family trust to get some benefit from no longer personally owning an asset. A family trust may be useful to:

  • Protect selected assets against claims and creditors – for example, to protect a family home from the potential failure of a business venture.
  • Set aside money for special reasons, such as a child or grandchild’s education.
  • Ensure our children, not their partners, keep their inheritances.
  • Manage the risk of unwanted claims on our estate when you die – such as from a former partner.

Other Trusts and benefits

  • A Trust can be used to own shares in a Limited Liability Company for tax purposes.
  • Trading Trusts can be directly traded through.
  • Trusts can be used to split income amongst beneficiaries for taxation advantages.

Who’s involved?

  • A Settlor: The person or Company who creates the trust.
  • Trustees: The people who manage the trust. The settlor can also be a trustee. It’s also a good idea to appoint an independent trustee. 
  • Beneficiaries: The people who benefit from the trust (for example members of your family).

Often there is more than one trustee. There may also be more than one Settlor of a trust.

The Settlor can have the power to appoint and remove trustees. This is an important power that we can also transfer to someone else in your Will.

A trust doesn’t necessarily end with your death – it can last for a maximum of 80 years from inception.

What’s involved?

First, you will need to decide what things you own should be put into the trust, and what their value is. In most cases this will be the family home, but other things of value like cash, bank deposits, shares, artwork etc. can also be included.

The ownership of these assets will then be transferred to the Trust and the Trust then owes a debt back to us, the Settlor. This debt can then be ‘forgiven’ through a process called gifting.

A legal document called a ‘Trust Deed’ will formally set up the Trust. It will appoint the trustees, list the beneficiaries, and state various rules for the administration and management of the trust. The trust deed needs to be very carefully written, preferably by a lawyer.

Asset transfer

Once the trust is formed assets can be sold into the trust, at market value. However, although the trust wants to buy, say, your house (and you want to sell it to the trust) the trust has no money to buy it. How then does the trust pay for the house?

The answer to this is that you lend the trust the money. Initially this is a ‘paper’ transaction – you sell the house to the trust, and the trust now owes you a house-sized debt.

However the debt that the trust owes you is still counted as a personal asset. So you will need to get rid of the debt so you can achieve your aim of owning less in your name.

The way you do this is through ‘gifting’.

Gifting

Most people who form trusts ‘gift’ away the debt that the trust owes them. Before October 2011 there was a limit of $27,000 that you could gift in one year without paying a tax called ‘gift duty’ to Inland Revenue. However gift duty has now been abolished and there is no limit to how much you can gift in one year.

Note that gifts are still included in assessment for a Residential Care Subsidy.

For more information visit the Work and Income website

The costs

Trusts can be complex and time consuming to administer. It costs money to set them up and there are generally ongoing legal and accounting fees.

It’s worth talking to us first to look at your financial structure and assets to see whether you actually need a trust.

 If you do, think carefully about who will be the trustees, as they will be responsible for managing the trust properly. Your Will should nominate people to be trustees after you die.

The risks

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

There’s the risk of having the trust declared a ‘sham’, which would mean that the assets are not really the trust’s 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 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.

There have been cases of family members suing other family members for a breach of the trust’s provisions. The courts treat claims of this sort quite seriously and they will normally be expensive to resolve.

Forming a trust is a big decision. When going down this route, make sure that it is established properly, for the right reasons, and managed well.

Getting advice

Trusts can be quite technical, so you will typically need both legal and accounting, expertise.

Good advice on trusts is important. Get professional advice right from the start with Weston & Associates and we can recommend a lawyer that is experienced in trust work (lawyers have different specialties and not all of them are experienced with trusts).

Putting property that could qualify as relationship property in a trust? Both partners should get independent legal advice on the implication and effects of that transaction before proceeding.

It may seem expensive to get an expert in, but it may cost even more if things are not done well.