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Do I still need my Trust?
Published in
September 2018
A regular question clients ask is whether they should wind up and terminate their Trust. New Zealand has one of the highest numbers of Trusts per capita in the world and many family homes are held by a Trust.
However, in order to ensure the benefits of a Trust are realised the formalities of the Trust must be respected. Importantly, all Trustees need to approve all decisions being made in relation to the Trust. We often find clients are frustrated when they want to quickly borrow money in the name of the Trust and are told that they need their Trustee to approve the documents and a Trustee Resolution needs to be prepared.
There may be important reasons why it may remain important to keep your Trust.
Asset Protection
Any individual who is exposed to an element of risk in their personal lives – for example, company directors, doctors, school principals, school boards of trustees, builders, property developers – should strongly consider retaining their Family Trust. If any claims are made against you personally, if your family home is held by a Trust then, provided your Trust has been set up correctly and administered property, your Trust will provide protection to your family home from these claims.
Relationships
A properly set up and administered Trust can provide protection to assets held in the Trust on the breakdown of a relationship. While this might not be a consideration to parents who have set up a Trust and continue to be in a happy relationship, parents should strongly consider retaining their Trust structure in order to provide some protection for their children’s future inheritance from the breakdown of any relationships.
Inheritance
One of the key benefits to retaining your Trust is that you can have control over when your children receive their inheritance. Any assets held by the Trust will not necessarily be distributed to your children on your death, but instead the Trustees can decide when it is appropriate to provide this to them. This can be in different sums over a period of time, rather than one-off payments. This allows flexibility to ensure that your children do not receive any inheritance at a time when it may not be appropriate for them to – for example, if they are young, bankrupt, will have tax consequences, or are in a relationship that is at risk of ending.
Tax
There can be tax advantages in keeping your Trust, and/or there may be tax consequences to you if you terminate your Trust, and so before considering terminating your Trust we strongly recommend that you speak to your accountant or tax advisor to understand the consequences of this.
However, often with the passage of time a Trust no longer has any advantages and the best course of action is to terminate the Trust. This may well be the case on the sale of a business and your risk profile changes or if the Trust was established purely for the of applying for the residential care subsidy.
If you think that your Trust is no longer required please make an appointment with us to discuss.