Family Trusts have gained a lot of attention in the media in recent times. Given the large number of trusts in existence (thought to be over 400,000 in New Zealand), some horror stories are bound to arise, but most of those problems relate to poor/no administration.

Despite the media hype, family trusts remain relevant and are a valid estate planning tool.

Some of the reasons for having trust ownership of your assets are:
1. protection of your assets against business risks for the self employed;
2. protection of your assets from legal claims against you if you are a senior employee with management responsibilities;
3. to prevent claims against your estate when you die;
4. introduction of death duties, succession tax or capital gains tax;
5. to protect inheritances from relationship property claims;
6. to protect single person's assets from future relationship property claims;
7. protection from asset and income testing for residential care (rest home) subsidies;
8. to provide for special family needs (e.g. child with a disability);
9. to pass on family assets to the next generation in a more discretionary manner than can usually be achieved in a Will.

To transfer ownership of your assets to the trust, the assets are sold to the trustees of the trust at market value. The trust then owns the actual asset but owes you for their value. You then need to forgive that loan to transfer your wealth (now a loan not the original assets) to the trust.

This is achieved by gifting to the trust. Gift duty was abolished effective from 1 October 2011. You can now gift an unlimited amount ant any time without incurring duty. There are a number of issues that you should consider before deciding to what amount to gift. Please refer to the separate article of changes to gifting.

Any change in value of the assets from the date you sell them to the trust, belongs to the trust, so you only ever gift the value of the assets at the date you sold them.

Appointment of the right trustees is critical. It is not essential to have an independent trustee, but we often recommend that you do where there is more than just the family home in trust. If our firm acts as an independent trustee for your trust, we do not charge for that service.

In order to gain the full value protection a trust offers, the gifting programme must be completed. There is of course some protection whilst you are still gifting, however, it must be remembered that the ungifted amount of the loan between you and the trust is still your asset and could be challenged in certain circumstances.

There is no "right time" to establish a trust, and is dependent on your circumstances. In most circumstances we do not recommend trusts for the very elderly as often the protection cannot be achieved because of the lack of time to gift, particularly for rest home subsidies as there is a clawback provision for gifts made.

Another essential tool is a Will that ties in with the trust. Some of the matters you must deal with in your Will are to forgive any debt remaining between you and the trust, replace yourself as trustee and leave your any assets in your estate to the trust.

If you contact us we can send you more comprehensive information about trusts. The best solution is to make an appointment with us to discuss your estate planning requirements.
- Michael Win is a Partner with Rodgers-Law in Dunedin and advises small and medium sized businesses on all aspects of commercial law. © 2011 Rodgers-Law

Links:
Gifting to your trust