14 Aug Why Trusts Remain Useful
The new Trusts Act is coming into force in January 2021. It ushers in a new beginning for trust law and practice in New Zealand.
The introduction of the Trusts Act has resulted in a nationwide conversation on the actual purpose underlying Trusts and ultimately whether they are still worthwhile. We believe the answer is clearly YES. Whether a Trust is right for you and your family is the question worth exploring.
In one sense, the law introduced by the Trusts Act is not ‘new’ as the common law principles of trust law remain. In another sense however, the law is ‘new’ as after 10 years of reviews, submissions and debates, Parliament has endorsed the unique legal concept of Trusts and its underlying trust relationship Parliament was absolutely clear that trusts play an ‘extremely important part in the framework of our legal and financial system’ in New Zealand, and ‘they have a key role in all aspects of the country’s commercial and financial sectors as they are central to ensuring that assets and wealth can be handed down to the next generation’.
So what purpose do Trusts have in the modern era?
As legal instruments, Discretionary Trusts remain unsurpassed as a mechanism to hold, grow and secure investment assets and to provide benefit of those investments in a planned, flexible and sustained way to family members and other worthy recipients like charities over the long term (which can now be 125 years under the new Act).
Put simply, if properly established and managed, a Trust provides asset and wealth protection against creditors and predators.
A Trust can potentially provide protection for your assets from a claim by a creditor.
Trusts can also ensure that your children, and not their partners, keep their inheritance. They manage the risk of unwanted claims on your estate after death and provide complete confidentiality from the public.
Trusts also provide potential protection against future tax law changes, such as for example, if a wealth tax, a death or inheritance tax is introduced in New Zealand, then trusts may be exempt.
Is Trust worthwhile for me?
Everyone’s circumstances are different. Family trusts cost money to establish and there are generally ongoing annual legal and accounting fees. These costs must be weighed up against what risks you perceive to be applicable to you.
The following queries could be useful in determining this question:
- Do you run a business that could face claims from creditors?
- Is there a potential for a relationship property claim against your assets or your children’s assets?
- Could predators come for your wealth?
- Is intergenerational wealth management a concern for you and your family?
Setting up a Trust and managing it correctly can be a complicated process that requires expertise, if you’re interested in receiving advice on a Trust for you and your family please contact our Trust and Estate specialist, Chris Hallowes on 027 253 1980 or [email protected].