Should You Still Have a Trust?

Trusts in New Zealand seem to be under attack from all sorts of directions at the moment. The upcoming changes to New Zealand’s trust laws, possible changes to relationship property law to allow trusts to be ‘busted’ and then creditors looking at getting access to trust assets if settlors and beneficiaries of trusts are in financial distress. Traditionally a lot of trusts have been set up in New Zealand for tax planning purposes, for example, getting around estate duty and income splitting, and also ensuring that you will be able to claim residential care subsidies in your old age! These reasons are no longer as prevalent anymore.

This is all leading to a lot of discussions as to whether you should still have a trust, especially taking into account changes in law and also changes in a family’s risk profile? The simple answer to that question is yes, but not in every circumstance. Trusts are still valuable entities for:

  • Asset Protection

 Although personal creditors are looking for ways into a trust to gain access to the assets, a well-constructed and well run trust will offer good protection if a settlor or beneficiary finds themselves being pursued for personal debts by creditors. In today’s current economic climate this might be a very real possibility.

  • Succession Planning

New Zealand has particular rules where assets are distributed after death under a Will. This doesn’t mean there needs to be equality, but some provision must be made for the children. Having assets in a trust can allow assets not to go to particular children if they are not beneficiaries. This might be necessary if a child becomes a drug addict for example. It also might be more beneficial to continue to manage family assets jointly in a structure instead of them being divided up amongst family.

These advantages to trusts have been around since the inception of trusts centuries ago and are still valid today.

Settlors and Trustees of existing trusts also continually need to consider the purpose of the trust going forward. For a trust that was formed 30 years ago for a specific purpose it may no longer be valid and the structure is no longer needed. Trustees who have good knowledge of the trust assets and beneficiaries will be able to make that judgment easily, but other trustees will struggle.

Covisory can help you navigate the question as to whether your trust is still necessary or not by carrying out a trust ‘health check’, something that should be done for all existing trusts before the new trust laws come into force. This is a relatively simple process where we review the trust documents and overall structure and provide you with a report identifying any issues that need addressing. Most trusts reviews we have recently done have only taken a couple of hours.

Marcus Diprose