Do I still need a Trust?

For trusts that have been around a number of years the answer to this question will vary. Often it is yes, sometimes it is no and sometimes a maybe – especially if the purpose of the trust has changed from when it was set up initially.

We regularly have this type of discussion with clients and the concerns about some aspects of the trust law changes have clients questioning whether a trust is still relevant for them. Although we have been advising some clients to wind up their trusts based on their specific circumstances in the vast majority of cases the answer is yes, the trust is still needed.

Why is a trust still relevant?

  • Asset Protection: a trust has always been good vehicle for asset protection planning. If you are an individual in a high risk job (for example acting as a company director) or run a business that is high risk of litigation then a trust will provide protection from personal creditor claims assuming it has been set up and administered properly. Unfortunately, relationship property claims are making inroads into property held in trusts, but a trust coupled with a relationship property agreement should provide good protection here.
  • Inheritance Planning: a trust can act as a vehicle for the transfer of family wealth after death as opposed to a Will and will offer more flexibility in that transfer. For example, a discretionary trust can stagger payments over time and there is also no requirement to provide for equal treatment between the beneficiaries. A Will is a more structured document, and the executors will need to follow the bequests set out in a Will carefully. As a trust is more flexible so a beneficiary can receive distributions when it is more appropriate, for example not making any payments when a beneficiary is in a crumbling relationship or a beneficiary is bankrupt.
  • Tax Planning: the introduction of the top personal tax rate of 39% for incomes over $180,000 will allow for tax planning opportunities with the trustee tax rate only being 33%. This will not work for everyone – especially if you are a wage or salary earner – but for some clients using a trust to take advantage of the difference in tax rates will be an option. Specific tax advice will be required before looking at this in detail.

We still get asked as to whether a trust is a good vehicle to enable the claiming of rest home subsidies. The Ministry of Social Development who administer this area look at the wealth held in trusts to apply the asset depravation tests. They have had some good wins in this area by looking at the trust structure from the beginning meaning the use of a trust to hold assets and claim a rest home subsidy is minimal in today’s environment. If you have not yet reviewed your trust for the trust law changes or it has not been reviewed for a number of years then we recommend this is done as soon as possible.