We offer a holistic approach to property law. That’s why we have a specialist practice area for trusts, estates and succession planning. Helping our clients preserve their assets is an integral part of what we do.
This is the second in a series of articles on personal asset planning. My colleague, Monique Mackie already discussed the importance of getting your will right. In this blog, I answer some questions our team is frequently asked about trusts. Do get in touch if you have any questions I haven’t included.
What is a trust?
Put very simply, we use trusts to rearrange the ownership of assets, in order to protect and manage them.
How can we help?
We must consider not only our clients and their immediate concerns. Their family, future generations and other people and organisations they care about are also front of mind.
- establish a new family trust which works for your family, transfer assets to that new trust and prepare a memorandum of wishes to deal with how those assets should be managed in the future;
- review your existing family trust and advise on any changes to help it run more smoothly;
- provide professional trustee services to ensure your trust is correctly managed;
- establish and assist with the management and running of charitable trusts.
Why would you need a trust?
In short – to protect valuable assets. Let’s delve more deeply into when and why your assets could be at risk.
Protection from creditors
- Trusts offer a reasonable level of protection for directors.
- If you are in business, you will be aware that the director rules (particularly around health and safety) have increased the personal risk associated with being a director of a company. Therefore the need for directors to protect their personal assets has also increased.
- Holding assets in your personal name is risky as many companies now request company directors give personal guarantees.
- Some terms of trade include a personal guarantee from shareholders, so if you are a shareholder of a company you may also be at risk.
You cannot establish a trust specifically for the purpose of defeating creditors.
Relationship property claims
- Trusts provide a “good” level of protection for claims made under the Property Relationships Act as trust assets may be held to be the separate property of one party.
- The best protection is gained by setting up a trust prior to entering into a relationship.
- Even if you have a trust, we still recommend you enter into a Relationship Property or Contracting Out Agreement with your partner.
You cannot transfer relationship property to a trust in an attempt to assert it is your separate property.
Passing on family wealth
- A trust can be an effective way to manage assets after your death. A discretionary (or family) trust is preferable to using a testamentary trust which is created by your will. A well drafted trust deed and supporting documentation will allow you to tailor the structure to suit your circumstances. Without it, you must rely on the rules in the Trustee Act.
- Holding assets in a trust for the benefit of your children, rather than distributing assets to them personally after your death, can offer better protection and certainty. The advantages discussed above, in relation to creditors and relationship property, also extend to your children.
- In the long term, a trust may put you in a better position in terms of applying for a residential care subsidy (rest home subsidy) or other means tested benefit.
You cannot establish a trust to immediately better position yourself to qualify for a means tested benefit or the residential care subsidy.
Should you forgive money owed to you by your trust?
- Generally speaking, the idea behind a trust is to reduce assets held in your personal name.
- If your trust was established prior to October 2011, you probably lent an amount of money to the trustee to allow it to purchase property (or whatever assets it owns). You may recall engaging in an annual gifting programme. When gift duty was abolished, many people did not deal with the balance of the loan outstanding. If so, it is possible the trust still owes you money. That amount is a personal asset. Releasing the trustees from their obligation to repay that amount, is likely to place you in a better position in relation to creditor protection and relationship property claims.
- For some people, keeping loans in place can create tax advantages. It can also provide a mechanism for extracting money from the trust without having to make a distribution.
Speak with us, or your accountant, to determine whether a lump sum forgiveness of debt is right for you.
Everybody’s circumstances are unique in our experience. That’s why our team will carefully consider your concerns and intentions before advising on the best way to protect your assets. Call us on (09) 375 2770 to make an appointment.
By Angela Mills