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A quick guide to family trusts print Print

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Family trusts have become very popular in recent years. This guide explains some of the benefits of a trust and explains why planning for the future now can reap significant benefits for you and your beneficiaries.

Getting it right from the start

This guide offers a quick overview of family trust and their benefits. It outlines a number of good reasons why you should investigate a family trust structure, but does not purport to offer legal advice. Trusts involve some complex specialist legislation and it is important that you get expert advice before you take any action. Note that not all lawyers are equally conversant with the complexities of family trusts, so you should select a lawyer or adviser with extensive experience in family trust formation and governance.

It is important that:

  • Any trust you set up is structured in the most favourable way to meet your aims.
  • You get advice from someone who is aware of all the benefits that a trust can offer - including possibilities you may not be aware of.
  • The advice takes into account all the current legislation and any impending legislation or possible taxation changes in this area.
  • The trust is administered properly.

This last point is important. Some trusts have been poorly administered or neglected after their formation. As a result, when challenged in court, they have failed to protect the assets they were set up to protect. The administration of a trust need not be onerous or time consuming, but it must be ‘genuine’ and not a ‘sham exercise’. 

Why are family trusts popular?

Family trusts are similar in a way to limited liability companies. Both these structures were conceived to act as a buffer between you and the world. A limited liability company is regarded in law as a separate entity to the shareholder(s). If the company fails (perhaps through no fault of its own), the shareholder(s)’ liability is limited to the paid up share capital plus any personal guarantees a shareholder/director might have signed. There are some exceptions: for example, if the directors have ‘traded recklessly’, they may be held accountable.

Similarly, a family trust acts as a buffer between the risks of the world and your assets. By gifting your assets into a well-structured trust, you may be able to gain a significant measure of protection. But as with a company, the protection offered by a trust can fail if the trust is not expertly structured or properly run, or is set up for the purpose of defeating creditors or gaining government subsidies.

The main benefits

Here are some of the advantages of a family trust.

Asset protection

A trust can protect your assets in the case of a business failure or a lawsuit against you. Note that it is possible to put your business into a trust as well as your house and other investments.

Relationship break-ups

A trust can offer protection in the case of a marriage or relationship break-up, particularly in the case of a second marriage, or a relationship where one of the partners is not the father or mother of the children.

Remarriage after death of a partner or spouse

Under current legislation, even de facto partners have a claim on assets after only three years in a relationship. A trust can protect assets such as the family home from unfortunate relationships or remarriages after the death of a spouse or partner. 

A properly structured trust that has been established for a sufficient period of time may offer protection of family assets in the case of a health breakdown, particularly later in life, where the state may require you to dispose of assets to qualify for health care.Health breakdown

Leaving more to your children

Most parents would like to leave a decent inheritance to their children. A trust offers you a good way of protecting your assets for your children.

Unwise investments

Trusts can protect your children from squandering assets or falling prey to financial predators or scams before they reach maturity or have gained sufficient life experience to make sound decisions.

Taxation benefits

An expert on trusts can explain in more detail the tax benefits that could result from a well-structured trust. Bear in mind that any present or future government could change legislation on issues such as estate taxes, death duties and capital gains tax.

Should you form a trust?

It’s certainly worthwhile investigating the advantages of a trust. You have little to lose and much to gain from speaking to an expert. Advance planning is a key to success in life, and a trust is one way of preparing for the future. There are good reasons to take action sooner rather than later:

Time factor and motivation

The courts do take the time factor into consideration in deciding the motivation behind the formation of a trust. For example, if you realise your business is in trouble and form a trust to avoid the claims of creditors, the courts could claw this money back on the basis that you deliberately set up the trust to avoid the legitimate claims of creditors.

Similarly, if the government decides you deliberately placed assets in a trust to avoid the means test required for you or your spouse to qualify for old age or illness care, it could contest the trust and require you to surrender assets to pay for your care.

Changes likely

The Law Commission’s review of trusts in New Zealand is not complete and may result in changes to Trust law.

Areas of concern include tax avoidance, social assistance targeting and the defeat of creditors though trusts.

One change that took effect on 1 October 2011 was the abolition of gift duty. This eliminated the previous gifting limit of $27,000 a year per person or $54,000 per couple into a trust (or to children) before gift duty applies.

The change to allow unlimited gifting into a trust might seem an opportunity for some to avoid the main aim of the Property Relationship Act, which is to provide a fair settlement to all parties, but courts are likely consider two important factors: when the trust was established and what was the reason for establishing the trust.

Myths about trusts

“I don’t need a trust – a will is sufficient.”

Although everyone should have a will, this is not a substitute for a trust because a will takes effect only after you die, by which time you (and your children or the beneficiaries of your will) might have lost a significant portion of your assets to the risks of life. For example, the need to qualify for government health care might have forced you to dispose of valuable investments and assets.

“I will lose control of my assets.”

A well-structured trust allows you effective management of your assets.

“I was told not to bother - trusts are only for rich people.”

You don’t need to be a millionaire to establish a family trust. Trusts are all about future planning and asset protection. Your assets in 10 years’ time (such as your house and business) might be worth far more than they are now.

“Trusts are too complicated to set up and run.”

Trusts need not be complicated to set up, and the administration of a trust can be quite straightforward. The secret is to get quality, expert advice.


As Trust law is being constantly reviewed, it is important to look for up-to-date resources and expert help.

Consulting your business contacts

It is a good idea to ask as many of your business contacts as you can if they have formed trusts and who advised them. It is not unusual to find that not everyone is happy with the quality of the advice they received, so spread the net widely before choosing a trust or estate planning adviser. Some trusts are more expertly and thoughtfully structured than others.

Also ask an ANZ Business Specialist for guidance on this topic. 

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