Why form a Trust?
What types of Trust Structures are there?
New Zealand Family Trusts
What is a trust?
Trusts have been used for centuries for a wide range of purposes, including asset protection, succession and estate planning. Trusts can offer several benefits to individuals and families seeking to preserve and protect accumulated wealth for generations to come.
How its formed
To form a Trust, firstly instructions are given by the client. These are provided in a Fact Find Document that has been specifically developed with the Anti Money Laundering Legislation that came into effect in New Zealand on 30th June 2013.
Once the clients have confirmed the establishment of this Trust, a draft Trust Deed and Engagement Letter are prepared and emailed to the client. Once all parties approve both the Trust Deed and Engagement Letter, the Deed can be executed.
The Trust Deed specifies who the Settlor, Trustees and Beneficiaries are, and also provides the Trustees with a full range of administrative powers. This allows the trustees to undertake virtually any action an individual could do. The major difference here is that an individual will record and store his/her decisions in their mind, the trustees record these decisions on a sheet of paper called a Trust Minute or Resolution.
The process of forming a Trust and placing assets into the same can be found under ’Robust Step-By-Step Solution.
Key Benefits of a New Zealand Family Trust
Succession Planning – Trusts enable you to pass family wealth smoothly from one generation to the next, via the establishment of Inheritance Trusts for your children.
Asset Protection – Trusts help keep your private and family assets safe from business risk and other attacks. This can be via a combination of Trusts such as:
- Family Trust to hold the Family Home and Investment Assets
- Business Trust to hold the Private Company Shares of your business.
Control – Trusts if established correctly and administered in a compliant fashion, can allow the Trustees to control the Trust well and truly after the passing of the Settlors.
Simplification – Trusts can significantly mitigate probate complexities for estates and ensure that all assets are held under this structure are successfully safeguarded for the Discretionary Beneficiaries of your Trust.
Management – If the management of your Trust is compliant and robust, the purposes for which you established your Trust will be achieved.
To discover how we can maximise the benefits of your NZ Family Trust – Contact us today.
Types of Trusts
As we have mentioned Trusts should not be viewed as ‘one size fits all’. Just as the Trust should be moulded to the clients’ needs, the type of Trust needs to be considered and again this should be based on the clients’ specific circumstances.
You should expect to see the following types of Trusts in any experienced Trust Company:
- Family Trust
- Single Person Trust
- Parallel Trusts
- Inheritance Trusts
- Business Trust
- Charitable Trusts
This type of Trust would is the most common in NZ. A Family Trust is usually created by a couple that have no children from a previous relationship and assets that are similar in value.
Typically, the illustration below shows how this type of Trust would be structured.
This Trust would normally hold the following assets:
- Family Home
- Family holiday home
- Family investments, i.e. term deposits, equities
- Rental Property(s)
Remember the actual assets that will form your Trust, will be determined by you and your Professional Adviser Group.
Single Person Trust
This type of Trust is normally created by an individual who is just exiting a relationship and wishes to secure his/her assets against any potential new relationships.
Remember, if you have already entered into a relationship, then the creation of a Trust alone will not secure your assets. Again, this is where your team of Professional Advisers needs to be consulted prior to the establishment of any structure.
Timing here is critical if you are forming a Trust at the time you need it, it is generally too late!
This type of Trust is also created by those individuals who are not in any relationship, however, have a desire to commence the protection of their assets when the value of the assets is at its lowest. As the asset appreciates in value, this increase is automatically protected within the Trust.
This type of Trust is established to match what is somewhat the ‘new’ norm in New Zealand, that being the concept of the Blended Family.
In this type of Trust each partner would create their own individual Trust structure, as illustrated below;
Thought needs to be given to the following:
- Did each partner contribute the same to the Blended Family Assets?
- What is the agreement between the couple in the event of separation or death? Has this been formalised?
- In the event of death, how and when will the deceased partner’s children receive their inheritance?
Remember here again, this is where your Professional Adviser Group needs to be part of the planning process prior to the establishment of any Trust structures.
This structure should not be limited to those people who have a Blended Family, there are many instances in which a Parallel Trust could be explored; again speak to your Professional Adviser Group to find what Trust Structure and type is the right fit for you.
In this type of Trust, the structure will be almost identical to a Family Trust, the only difference will be the class of assets the Business Trust holds as opposed to that of the Family Trust.
As the name suggests, the Business Trust is normally utilised to hold and protect the Private Company Shares. Potentially if all Assets Classes were held under the same structure, tainting could result.
Below is the Structure of a Business Trust;
The beneficiaries of this structure could include the Family Trust as a Discretionary Beneficiary.
Again for this type of Trust, the advice from your Professional Adviser Group (your Accountant in particular) is absolute and necessary. We will only assist in the implementation of this type of Trust, if your Accountant has confirmed that there are no tax consequences for the placement of the shares into this Trust and that there will be no consequences personally on the shareholder due to for example the loss of imputation credits.
This type of Trust is becoming a very popular vehicle to help protect children’s inheritance from potential relationships, creditors etc. This structure should be considered when looking at securing your wealth succession plans.
Here the parent(s) will create this type of Trust for each child, firstly ensuring that the perpetuity periods are identical.
The parents will initially be the Trustees along with a Professional Independent Trustee. The Discretionary Beneficiaries will be the child, his/her children and their Trusts.
The structure for this type of Trust is below.
Here the parents Trust will distribute the assets directly to the child’s Trust.
The creation of a Charitable Trust should be managed by an expert in this particular field.