In New Zealand it is common for families and those carrying on a business to hold real estate and company shares through a family trust.
What is a Trust?
A Trust is a written arrangement which creates a legal obligation when a person gives assets (the settlor) into the control of another person (the trustee) for the benefit of one or more persons (the beneficiaries). This arrangement is recorded in a legal document (the trust deed) setting out all the rules and powers for administration and operation of that trust.
The asset that is transferred to the trustee do not personally belong to the trustee but are held by the trustee in the name of the trustee on trust for the beneficiaries. Essentially, the settlor ceasesto be the legal owner of those assets but can still continue to enjoy the benefits of the assets through the trust. The trustee has the legal obligation to administer those assets for the benefit of the beneficiaries named and in the manner set out in the trust deed and any duties placed upon the trustee by law.
Why would you wish to set up a family trust?
A family trust can:
1. Protect assets from claims by:
(a) former spouse or former defacto partner; and
(b) disappointed relatives and dependants not bequeathed any properties under the will; and
(c) creditors, including business creditors in the event of failure of business.
2. Assist with income planning in the following ways:
(a) tax advantages; and
(b) allow claim for government subsidies on retirement.
What are the essential elements of a Trust?
A trust must have the following essential elements:
- one or more settlors (the person who creates the trust)
- one or more trustees (those in charge of administering the trust)
- beneficiaries (the people for whose benefit the trust is set up)
- properties to put into the trust (the trust funds)
- a trust deed (the legal document setting up the trust)
Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For legal advice please contact our professional team at Forest Harrison.