Family Trusts This article considers some of the reasons for establishing a family trust. To Benefit Others Many people want to provide for their immediate family. Trusts are often set up for the benefit of spouses, partners and children but the list of potential beneficiaries is unlimited and can be extended to include charities. The person establishing the trust, the settlor, can also be a beneficiary of the trust. To Protect Assets For many people the most important reason for forming a family trust is the desire to protect assets, whether it be from loss due to business risk, family instability, asset testing or taxation. (i) Creditors A Family Trust can be used to protect family assets from future claims of creditors. Those in business, whether working alone, in partnership or under a company structure, should consider using a Family Trust for this purpose. Assets cannot be transferred into a trust once claims have already arisen, but careful planning and forethought may make it possible to place family assets beyond the claims of creditors. (ii) Family Protection Claims The Family Protection Act 1955 enables spouses and children to claim against the estate of a person who has died on the basis that the deceased has not adequately provided for those dependents under the terms of his or her will. Under this Act the Court is able to redistribute part or all of the estate as it considers appropriate. Such claims however cannot normally be pursued against assets the ownership of which has been transferred to a Trust. (iii) Matrimonial Property Property which is not matrimonial property is not divided between spouses when a marriage ends. Consequently it can be important to keep assets separate and prevent them from becoming matrimonial property. This may be a particularly important consideration:   when parties are marrying for a second time. Transferring the assets of each spouse to their respective Family Trusts may be a way of presenting those assets for the benefit of children from an earlier marriage. when parents are considering transferring ownership of an asset to a child. Transferring the asset in trust for a child ensures that the item will not be included in a property settlement in the event that the child's marriage ends. (iv) Protection From User Pays Charges An increasing number of services are being provided by the State on a "user pays" basis. For example, income and asset tests now govern the availability of a Community Services Card, tertiary assistance and rest home subsidies. The trend is likely to continue. Assets which have been transferred to a Family Trust may be protected from such means testing. The monetary value of an individual's assets would not include items that had been transferred to a Family Trust since such items are in law no longer "owned" by the settlor or the individual beneficiaries. Such arrangements however need to be made well in advance as Income Support is able to examine past transactions and presently operates a policy of looking at transactions occurring in the preceding five years. (v) Income Planning The simplification and reduction of income tax rates together with the abolition of the surtax on National Superannuitants' income from 1 April 1998 has reduced the role of Trusts in income tax planning for many people. Conclusion The creation of a Family Trust may be appropriate in many circumstances. The transfer of assets to a Trust can help preserve them for the benefit of their original owner and for others he or she wishes to assist. The Health and Safety in Employment Act 1992 requires every workplace to have a safety and health programme. Call Gallaway Cook Allan for advice on how to set this up. Email: lawyers@gcalegal.co.nz [Use Back Button to return to previous page]