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Asset Protection - Wills & Trusts
Our asset protection team can advise you about wills and trusts and prepare and manage them for you.Trusts
A trust should:
Let you control how funds are used or invested.
Provide for as wide a range of beneficiaries including spouses, parents, children, grandchildren and extended family as you wish.
Ensure that your present lifestyle is maintained and that income producing assets will be available in the future.
Who is involved?
A trust involves three different groups of people; the settlor, the trustees, and the beneficiaries.
The settlor is anyone who transfers assets to the trust. That person is said to be “settling assets on the trustees”.
The trustees are the legal owners of the trust property. They have to look after the trust property in accordance with the trust’s rules. They do not get any benefit from the trusts assets.
The beneficiaries are those who can receive the benefit of the trust’s assets.
How do trusts work?
Trusts are separate legal entities. Each trust is another “legal person”. Trusts can own assets and owe debts. If you set a trust up and the trust acquires assets, those assets belong to the trustees and not to you. This is one of the main benefits of a trust.
If you have assets which you want to transfer to a trust then you would settle a fair market value for those assets and sell them to the trust at that value. The trust would then own the assets and owe you the purchase price. Each year you can make a gift to the trust of the maximum amount possible without incurring gift duty (now $27,000) reducing the debt. As a result, instead of you owning an asset which is rising in value (with inflation and growth in the asset), you own a debt which is going down in value (with each gift). If you have to make a declaration as to what assets you own you do not include assets which belong to the trust as they are not your property.
Although the immediate benefit is often small the benefits grow as time goes by. Trusts are more valuable for those who wish to plan long term for their future. ‘
A trust must not be a sham. It is important that it is properly administered.
Choosing Trustees and Beneficiaries
A selection of trustees and of beneficiaries has to be done carefully because the trustees control the assets and make all the decisions whilst the beneficiaries get all the gains from the assets. It is common (and in come cases, essential) to have some other trusted person (who is not a beneficiary) as co-trustee. You may choose to appoint a close friend or relative or your accountant or solicitor to that role. The trust can have you and your spouse and all your present and future family as possible beneficiaries. At any time the trustees can choose which (if any) of those people should receive any part of the capital or income from the trust. Until the trustees make that selection none of the beneficiaries is entitled to anything from the trust. Eventually at some date after you have died the trust property will be distributed to beneficiaries who have been nominated by you.
What if you divorce or separate?
If both you and your spouse are trustees each is forced to co-operate with the other in dividing assets. As with the division of all assets on separation, either the parties have to agree, or a court order has to be sough.
Single trust and mirror trusts
It is possible to have one trust per family unit, or two (“mirror”) trusts. Different considerations apply and these should be discussed with us.
Can the trust be unwound?
At any stage the trustees can wind the trust up by distributing the assets amongst the beneficiaries as the trustees choose or by settling the property under a fresh trust.
What about tax?
If the trustees keep income they pay tax on it (from their trust’s funds) at a fixed rate. If the income is distributed promptly then the recipients pay tax on it at their rate and the trustees pay no tax on that income. Significant tax savings may be achieved. For example trust money spent to pay for a child’s education may be taxed at the child’s rate and not at your rate.
manager@webbross.co.nz