In New Zealand, family trusts continue to be a sought-after strategy for asset protection and comprehensive estate planning. A family trust is essentially a relationship established when a settlor places assets under the control of trustees for the benefit of beneficiaries.

 

The family trust structure often involves the settlor, who is frequently a trustee and primary beneficiary. Discretionary beneficiaries commonly include children and grandchildren. Trust creation is frequently intertwined with broader estate planning initiatives, involving the drafting of new wills for the settlor. While the settlor’s intentions may be recorded in a non-binding memorandum of wishes, trustees must adhere to the Trust Deed, guided by general obligations and legal frameworks such as the Trustee Act 1956 and the Trusts Act 2019.

 

Benefits of Family Trusts: Safeguarding Your Legacy

 

Family trusts offer several advantages, including:

 

1. Protection Against Relationship Property Claims: Properly structured trusts can shield personal assets from potential relationship property claims, especially if established before the commencement of a relationship.

 

2. Creditor Protection: Individuals in high-risk professions or business owners may opt to safeguard assets, like a family home, within a trust to shield against financial repercussions in the event of business failure.

 

3. Asset Management for Family Members: Trusts facilitate managing assets on behalf of family members who may be unable to do so independently.

 

4. Estate Planning Safeguards: Utilizing a trust in estate planning ensures a well-established framework for property management aligned with your wishes, minimizing the risk of potential claims against the estate.

 

A Word of Caution: Challenges and Evolving Legal Landscape

 

Despite their popularity, family trusts are not universally suitable and may face challenges, particularly in the realm of relationship property claims. The legal landscape in this domain is dynamic, and courts may invoke “trust-busting” powers in certain situations.

 

Recent changes, such as the Trusts Act 2019, have added complexities to trust management, imposing more obligations on trustees. This may result in increased costs associated with maintaining a family trust. The Act introduces a presumption that trustees provide essential trust information to beneficiaries, with additional information granted upon request. However, exceptions exist, and providing such information may not always be desirable.

 

It’s crucial to note that trusts are not foolproof for asset protection, as courts can set aside trust dispositions aimed at defeating creditor claims or involving gifts made within prescribed periods.

 

Conclusion: Strategically Incorporating Family Trusts

 

While family trusts offer robust asset protection and preservation benefits, they should be viewed as integral components of a comprehensive estate and asset planning strategy. Provisions in your will should align with the structure and objectives of the family trust, ensuring a harmonious and effective approach to safeguarding your legacy.