With between 300,000 and 500,000 Trusts in New Zealand, they’re clearly a popular way to protect assets. However, the Trusts Act 2019 comes into force on 30 January 2021 and brings key changes to the way Trusts are run and imparts stronger duties upon Trustees. If you have a Trust, you’ll need to weigh up the benefits of continuing with your Trust against the increased compliance costs.
So, why did you set up your Trust? Are those reasons still relevant? Here are some of the most common reasons for forming a Trust:
Asset protection: Trusts can protect personal assets from creditors in the event of personal bankruptcy or the insolvency of a company (if the donor was solvent when the assets were transferred into the Trust), and from any personal liability as a company director.
Continuity: Trusts can continue to operate after the death of the Settlor without any immediate need to sell assets to distribute among beneficiaries. This means assets can be progressively distributed to beneficiaries and distribution to vulnerable beneficiaries can be delayed. Trusts can now continue for up to 125 years (previously they were limited to 80 years).
Government claw-back: Previously, a key benefit of transferring assets into a Trust was to enable the Settlor/s to access residential care subsidies. However, new rules make this almost impossible to claim now if you have assets in a Trust.
Property (Relationships) Act: A Trust can be used to prevent family assets becoming inter-mingled property and therefore exposed to relationship property claims in the event of a relationship break up.
Family Protection Act: A Trust can protect assets from family protection claims by disgruntled family members who disagree with the provisions of a deceased person’s Will.
Protection in old age: Trusts can be structured to reduce the risk that an elderly person will lose family assets through a relationship breakdown, undue influence of other family members, or poor financial decision making.
Income spreading: Income earned by the Trust may be spread among one or more beneficiaries to take advantage of their lower tax rates.
Is a Trust still your best method of asset protection? If you haven’t reviewed your Trust for a while, now is the time to do so. New legislation means new obligations and increased administration costs; and your Trust must be compliant by the 30th of January 2021. Make sure your Trust is up to date, compliant, and relevant for your current circumstances.
This article is of a general nature only and is not intended to constitute specific advice. Need help to determine if your Trust is relevant and compliant? Contact us for more information about our Trust Review service.