Trusts can be used to protect property and manage assets. There are a number of reasons why people turn to trusts to take care of what they own and wish to pass on, including:

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• Providing for future and family.

• Ensuring assets are passed on intact.

• Saving time, money and stress by transferring assets prior to death.

• Changing tax liability.

• Protection from relationship property claims, creditors and will disputes.

 

Trusts are created through the transfer of property assets from an individual or group, known as a Settlor, to a group of people called trustees – who must use the property or assets in a manner specified by the Settlor. Often one of these conditions is making payments from the trust property to individuals termed ‘beneficiaries’ of the trust. These are the people for whose benefit the trust has been established. However, the terms can vary greatly depending on the purpose for which the trust was created.

Though trusts are often given names and referred to in similar terms as a business, they are legally something quite different. The New Zealand Law Society defines a trust as “a relationship between trustees and beneficiaries, which imposes duties on the trustees to deal with the trust property in the interests of beneficiaries.”

For example, an investment property may be transferred into the ownership of a trust by a Settlor father (who is separated from his children’s mother), with rental income to be distributed evenly by the trustees to his beneficiary children. The property will be protected from claims by any of the father’s future partners, and also secure from creditors.
 

A few key points:

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• A trust typically has two or more trustees, and a Settlor can choose to be a trustee of their own trust.

• Settlors usually have the power to add beneficiaries – for example, wider family members or a charity.

• The maximum amount of time a family trust can exist for is 80 years, and an end date must be specified.

• Somebody (usually the Settlor) typically has the power to appoint and remove trustees.

• Trustees are the owners of the property or assets in the trust, though they must abide by the terms set out in the trust deed.

• Assets can be gifted or sold into the trust at any time without incurring gift duty.

• Any income or increase in value attributed to the trust’s assets belongs to the trust – not the Settlor personally.

• Income in the hands of the trustees will be taxed as trustee income, and income in the hands of a beneficiary will generally be taxed at their personal tax rate if it is paid out within six months of the end of the tax year.

 

If you are considering setting up a trust, the recommended structure will depend greatly on what you need it to do. Kemp Barristers & Solicitors will work with you to provide a solution that best suits your personal and financial needs, in accordance with the limits of the law.
 

It is vital that you understand how your trust will work and what rights and responsibilities each party will have before you establish it. We are here to help, and happy to talk you through the options available.