Often you read in the local press or lawyers’ websites how important is to have a Trust. It appears to be the solution to all your property problems and a tool to defy all the odds.
The use of Trusts is widespread in New Zealand and regularly clients approach me for advice on setting up one “because everybody has them”.

Many people who set up a trust may not need the protection they offer and are unaware of the restrictions and obligations they are entering into. If a trust is not properly established and managed it may easily collapse if challenged.

There is a current trend (from the legislator, the Courts and Government Departments) to reduce the protections that Trusts traditionally offered. For example it does not longer make sense to talk about setting up a Trust in order to benefit from rest home subsidies. Being a beneficiary of a Trust and having disposed of your assets to a Trust are reasons to refuse rest home subsidies. Another clear example of loss of protection given by Trusts are recent judgments in which Trust assets are taken into account when dividing assets in cases of separation or divorce. For those interested in this area, the leading case is the judgement from the Supreme Court in Ward v Ward which can be accessed online.
As per protection against creditors, Trust will also have a limited effect. In cases of entering into a substantial debt most financial and trading entities will require guarantee to be given by the trustees (many times by way of mortgage over its assets). Furthermore, in cases of liquidation or bankruptcy, gifts made to the Trust will be under scrutiny and may be clawed back.

It is also important to understand that trustees have fiduciary duties towards the beneficiaries: they need to act in their best interest and with independence. The management of the Trust comes at a cost, not only in terms of fees but also in terms of time to do it properly.

Most of the benefits that a Trust can offer can also be provided by other legal means at a cheaper cost, like entering into a property relationship agreement or trading through a company instead of as individual trader.

Despite all of the above, there are advantages that can be achieved from setting up a Trust.

I would recommend the use of a Trust for example if you have a property that you want to be for the benefit of your children and want to ensure that is not taken away from them by their partners in case of separation or divorce.
By appointing your son or daughter as beneficiary that person may have use of the property but the ownership remains in the trust and therefore would not be considered as relationship property if the relationship terminates.

You can also use the Trust as a way to keep an asset undivided for the benefit of your descendents. This can be of special interest where the Trust owns the shares of a family business and you want to ensure that the shares are not individually distributed among the family members who could then sell them to third parties.
There is also the protection from possible future taxes, especially if estate duty is re-instated in the future. Where the assets are held in Trust there is no change of ownership at the time of the death of the settlors and therefore there would be no estate duty applicable upon their decease.

Trust can be a very good tool to provide for your loved ones but clearly it is not the legal miracle that some may think is.



for the public