(Acknowledgement-  some ideas for this article have been derived from the following publications- “Protect your Assets” by Ross Holmes and Family Trusts, A New Zealand Guide” by Martin Hawes”.

A family trust allows the ownership of some of your valuable assets to be in someone else’s name while you have use of them.


A family trust is established by drawing up and executing a trust deed.   There are three parties involved:

Settlor- this is you, the person wishing to establish the trust by settling an asset on it.
Trustees- these are the people who hold the ownership of the asset and look after it for the beneficiaries
Beneficiaries-   these are the people who will ultimately get the assets or the benefit of them



Ensuring that your estate will be distributed with a minimum of red tape and cost to those whom you wish to benefit.
Flexibility-  The settlor no longer owns the assets but continues to have the use and benefit of them.   This is necessary because there can be no certainty about future legislation, court decisions, or your own circumstances.
Reducing your families overall taxation liability if you have beneficiaries to whom you wish to make payments who are on a lower tax rate.
Protecting your assets from claims under the Matrimonial Property Act if you get married , or remarried, And from creditors in some circumstances.
A better chance of obtaining residential care subsidies if you need rest home or long term hospital care in future.
Legally minimising estate duty for both you and your children or other beneficiaries (if estate duty is reintroduced)
To keep your business running after death, if this is what you want.
To prevent your capital being spent by any of your children who you believe would “blow” it.
To prevent your children’s partners benefiting from your capital (particularly if you believe his/her marriage will not last).   Your trust can buy the asset  you might otherwise gifted to your child, and allow your child and his/her partner the use of it.
Protection for Professional People- to protect assets against financial difficulty and claims  by clients and other parties.



Reliance on Trustees.   When you establish a trust in nearly every respect you are alienated from those assets.   You no longer own them- the assets are no longer in your name.   This means that you must rely on the trustees.   Even if you are one of the trustees, perhaps with a right of veto (quite a common form of control over a trust) you will nevertheless require the compliance and goodwill of the other trustees to achieve what you want.
Cost- the cost involved in establishing and running.  



Trusts are usually set up through an inter-vivos (i.e. becomes effective during the lifetime of the settlor) trust deed or a will.
Property is held for a period, either short or long term, by a trustee or trustees, instead of being held by the original owner.   It involves the transfer of assets, from the settlor to another legal entity without receiving full consideration in money or money’s worth.
There is an element of gifting present.   The value of the property is usually repaid over a period of time by gifting from the settlor to the trust, although the settlor has the ability to be repaid in cash or kind.
Accumulations of the property (e.g. rent and capital gains for real estate, interest on investments)  are distributed at a future time for the benefit of pre-defined purposes or beneficiaries.
Distributions to beneficiaries may be in cash or property.  



The property most suitable for trusts are items which are most likely to increase in value over time

e.g. real estate, shares, managed fund investments, long term investments (e.g. forestry)



The normal procedure is to set a gifting programme whereby a maximum of $27,000 per year is gifted.   This is due to the fact that under current legislation gifts under $27,000 (or in the case of a married couple $54,000) within a 12 month period are exempt from gift duty.   Gift duty rates are thereafter on a graduating scale-   if gifts exceed $72,000 in a 12 month period the gift duty payable is $5,850 plus 25% of any excess over $72,000.
There is also Section 74D of the social Security Act to consider.   This implies the Work and Income New Zealand (WINZ) may decline a benefit or subsidy for anyone who has deprived themselves of an asset.   This is really aimed at the gifting of assets and allows WINZ to look back in time to see if any gifting has taken place.   This act does not specify a time limit but WINZ have adopted as a matter of policy a five year period.   The trust therefore needs to be put in place, assets sold into it and the giftinh programme completed at least five years before the settor of the trust can qualify for a rest home subsidy.
Thus if personal circumstances are appropriate for the formation of a family trust, it is advisable to set this up and initiate a gifting programme earlier in life than later.



The trust is a separate legal entity for taxation purposes, and the trustees must file taxation returns every year.
Any income distributed to a beneficiary is taxed as beneficiary income at the marginal tax rate of the beneficiary.   
There is an exception to this in the case of income distributed to a minor as a consequence of legislation introduced in 2000. Certain distributions of beneficiary income to a child under the age of 16 years will be taxed at a final tax rate of 33%, if the beneficiary income is more than $200, if that income is derived from property which was settled on that trust by a relative of guardian of that minor or a person associated with a relative or guardian.   This measure will apply from the start of the 2001-2002 income year.
Any income not distributed to beneficiaries is taxed as Trustee Income.   The current income tax rate for this is 33%.  



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