Trusts have been around for centuries and are still a popular vehicle of property ownership and asset protection in New Zealand today. Despite this many people still don’t understand the basic workings of a trust, what a trust is and how to form a trust. This article explains some of Trust FAQ’s / frequently asked questions surrounding trusts.
What is a Trust?
Unlike a company, in New Zealand a trust is not officially registered anywhere. This is because a trust is not an entity as such, rather a set of obligations placed on the Trustees. A trust exists when a person (or company) known as a Trustee holds and owns assets for the benefit of another person being the beneficiary.
Why consider setting up a trust?
Forming a trust is a way of protecting major assets such as the family home or bach and accumulating wealth for future generations. Some of the main benefits and reasons to consider a trust include:
· As part of an estate plan to provide for, and benefit, future generations;
· Protection against relationship property and third party claims;
· To provide for minor children, and/or family members who may be physically or mentally disabled.
· For protection against potential reintroduction of estate duties
· For charitable or philanthropic purposes.
How is a trust formed?
A family trust is created when trustees sign a trust deed by which they agree to hold property on trust for beneficiaries. A trust is not a separate legal entity, in the way that a company is.
A Trust Deed should be always be signed as this is the legal document that appoints beneficiaries and trustees, states the wishes of the settlor. It includes the powers and duties of the trustees and sets out rules as to how the trust should be managed. The Trust Deed is usually quite a long detailed document that should be crafted according to the specific wishes of the Settlors. As trusts deeds are technical legal documents you should always get one drafted by a lawyer with experience in this field. Your lawyer will also be able to assist with updating your wills, memorandum of wishes and gifting all of which are important aspects of having a trust.
The Settlor then transfers his assets to into the names of the trustees so in the case of a house the trustees’ names would show on the title.
What is gifting?
Gifting is the process used by many to transfer assets into a trust. Generally when a trust is set up the settlors transfer a property or other asset into the trust. The trust has no money to pay for this so the settlors can make a gift to the trust or advance a loan to the trust depending on their circumstances.
Does your trust need to apply for an IRD number?
If you want to own property in a trust then yes you will need to apply for an IRD number for the trust. It is now a requirement in New Zealand that an IRD number be provided by every entity buying or selling real estate.
Please note that Trusts are complex area of law – These Trust FAQ’s are of a very general nature and intended as a brief introduction to the topic. It should therefore not be used as a basis for making decisions. Our lawyers would be happy to meet with you and give advice pertaining to your situation.
Get in touch to discuss if a family trust is the right option for you or if you have any queries not answered in these Trust FAQ’s