Frequently Asked Questions

The main purpose for establishing a Trust is to separate assets from your ownership to ensure they are protected for the intended beneficiaries. Here are the main reasons for establishing a Trust:

• To protect your personal lifestyle assets from the risks of business. The use of a Trust ensures your family doesn’t suffer the loss of the family home and other personal assets not associated with a business should your business venture fail. The transfer of assets must be fully completed before the first signs of any creditor action or business failure is evident.
• To ensure your assets transfer to your children, without challenge, and without being attacked if their relationship with their partner breaks down in the future.
• To provide for dependants such as children or grandchildren – for their education, if they have disabilities or an inability to manage money.
• To ensure continuity of family ownership. Many New Zealand families have owned businesses or farms for several generations and want to keep these assets in the family. Transferring assets to individuals may result in the loss of the assets through relationship breakdown in the future.
• To protect separate property within a marriage or a de facto relationship.
• To provide for unequal sharing of your assets on your death. For example, different amounts for specific children of a prior marriage or a child with limited money management skills.
• To provide long-term support for a charity.

A Trust should not be established just to avoid tax. A Trust established for this purpose can be declared void under anti-avoidance provisions of the Income Tax Act. However, it is sometimes possible to set up a Trust in a way which minimises tax liability.

Unfortunately, it is not enough to sign a piece of paper with ‘Trust’ at the top of the page and then to carry on as if nothing has changed. In recent years the Courts have been quite active in striking down Trusts where these were considered to be a sham.

A Trust is a sham if you started off with no intention of treating it as a genuine Trust. Or it may be that you started off with a genuine intention but over time you forgot to run things properly and started to treat the assets as if they were still yours. Either way you may find you have gone to all the trouble and expense to set up a Trust, but because of the way you have acted, it is as though you never set up a Trust.

There are a few things you could do to help avoid this risk:

• Ensure trustees’ decisions are recorded in a trustees’ minute book or by way of written resolution;
• Where there is more than one trustee, all of the trustees must be involved in all of the decisions and actions by the Trust;
• Ensure the trustees meet at least once a year to review the investments and assets of the Trust; and,
• Maintain proper annual accounts and (if required) file tax returns.

Perpetual Guardian can assist you with all of this.

Trusts are not as prevalent in other countries as they are in New Zealand and you cannot simply pick up your Trust and take it with you. You will need to obtain specific tax and legal advice about the country you are going to.

We can assist you in obtaining the right information and making the decision as to whether it is worth your while continuing with the Trust or winding it up.