Trusts play an important role in New Zealand society and its economy. There are an estimated half million trusts existing in New Zealand – and with good reason as trusts,  when established and managed properly, provide a valuable long-term asset management structure.

There are a range of reasons to establish a Trust, including flexibility for your family and business.  A Trust can be an excellent way to protect and preserve assets while benefitting your business and family members during and beyond your lifetime.

What is a Trust?

A Trust is a legally binding arrangement or relationship between the trustees and beneficiaries. Trustees own and manage Trust property for the benefit of the beneficiaries. This arrangement is created by the settlor of the Trust who appoints these parties.

A Trust becomes active once it is settled, or in other words once it is created by a Trust Deed.  The Trust Deed sets out rights and obligations existing between the settlor, trustees and beneficiaries.

Who is involved?

·         The Settlor: The person or company who creates the Trust, who may also be a trustee and beneficiary.

·         The Trustees: The people who own and manage the Trust property for the benefit of the beneficiaries.

·         The Beneficiaries: The people who benefit from the Trust, for example family members including future generations.

Key benefits of a Trust

Trusts are flexible arrangements that can provide a variety of benefits. Some of the key benefits of a Trust include:

·         Generational succession planning: a Trust can exist for up to 125 years and does not end on the settlor’s death.  Trusts can protect assets such as investments, company shares or your family home for generations, ensuring continuity of family ownership.

·         Asset protection: there is a legal and practical separation between your personal assets and assets owned in a Trust.  When you transfer assets to a Trust, you are no longer the legal owner of them.  Instead, your chosen trustees take control of those assets for the benefit of the beneficiaries.  As a result, those assets are usually out of reach of personal creditors and fall outside relationship property claims, for example.

·         Tax efficiencies: there are possible tax efficiencies in holding and distributing assets and income from a Trust to the beneficiaries, depending on your personal, family and business circumstances.  Business income may be distributed through a Trust and split among beneficiaries who are taxed at lower rates. We recommend seeking specialist financial and accounting advice when considering a Trust to explore tax efficiencies.

·         Business succession: businesses often falter or fail completely when a business partner dies or becomes seriously disabled.  Alongside other key documents such as a buy-sell agreement, business owners may consider establishing a Trust to ensure a succession plan is in place should unexpected disaster strike.

Careful planning can make all the difference in the ongoing protection of assets for your business, family and future generations.  A Trust can provide peace of mind that an effective long-term asset management structure is in place during and beyond your lifetime.

Ford Sumner regularly establishes and manages Trusts and can provide professional trustee services for its clients.  If you would like advice on how a Trust can strengthen asset planning in your circumstances, contact Sarah (sarah@fsl.nz) or Sean (seanp@fsl.nz) to discuss.