Setting Up A Family Trust - Some Legal Considerations
Most people have heard of a family trust but in fact know little about how trust funds actually work. If you are one of them you are not alone. Many people think they know a thing or two about trusts but this is dangerous as the tax and administration laws for trusts in New Zealand area very complicated with hefty penalties for non-compliance.
A common misconception is that people tend to believe that trusts are set up by wealthy people who have a lot of money to put in a trust fund with the express aim of avoiding tax like some of the big corporations we hear about. But in fact, trusts are set up for many reasons. One is to protect assets from creditors and another is to leave a person's estate to their family after they pass away.
Describing a family trust
Many people ask the question, "What is a family trust or trust fund?". IN simple terms, a person sells their assets to a trust which is administered by Trustees who distribute the proceeds of the trust according to the wishes of that person as set out in the Trust Deed. Trustees are not allowed to act for their own benefit. They can also make decisions about the funds or the capital of the trust as long as it is in the best interest of the beneficiaries.
A common misconception is that people tend to believe that trusts are set up by wealthy people who have a lot of money to put in a trust fund with the express aim of avoiding tax like some of the big corporations we hear about. But in fact, trusts are set up for many reasons. One is to protect assets from creditors and another is to leave a person's estate to their family after they pass away.
Describing a family trust
Many people ask the question, "What is a family trust or trust fund?". IN simple terms, a person sells their assets to a trust which is administered by Trustees who distribute the proceeds of the trust according to the wishes of that person as set out in the Trust Deed. Trustees are not allowed to act for their own benefit. They can also make decisions about the funds or the capital of the trust as long as it is in the best interest of the beneficiaries.
Why do people on the North Shore have Family Trusts?
Trusts are a very important part of estate planning since it determines how asses are distributed and the potential tax that might be due on that estate. This is especially important when young children are involved. The parent or grandparent may want the child to reach a certain age before they can enjoy the benefits of the trust.
Another reason for setting up a trust is for those who are not good at managing their money. The trusts ensures that their needs and requirements are well catered for but they do not have access to a significant lump sum of money which they could quickly spend on frivolous items or activities. Other people set up a trust to provide for their own personal care when they become infirm or cannot look after themselves any longer. The Trustees will allocate funds to care-workers, rest-homes or whatever else might be required to look after that person in their old age.
Providing for special needs children is another common reason people create trust funds. For example, if you have a child who is mentally ill or physically disabled then the Trust can provide for them financially in your absence.
Perhaps the most common thought behind a trust is to protect it from creditors. This is particularly useful if you own a business.
Setting up a trust on the North Shore
Let us look on how to set up this trust. The law requires that that the wording involved in setting up a trust be precise and that is why a solicitor is required to set up a family trust. The law is so complicated that it is best to go to a specialist North Shore trust lawyer rather than a general solicitor.
The other requirement is to choose trusted people who will be your trustees to your trust funds. Most people choose family friends or close friends to be their trustees. This are people we can easily trusts and rely on anytime. Regardless of this, one should think carefully and choose responsible people.
Trusts are a very important part of estate planning since it determines how asses are distributed and the potential tax that might be due on that estate. This is especially important when young children are involved. The parent or grandparent may want the child to reach a certain age before they can enjoy the benefits of the trust.
Another reason for setting up a trust is for those who are not good at managing their money. The trusts ensures that their needs and requirements are well catered for but they do not have access to a significant lump sum of money which they could quickly spend on frivolous items or activities. Other people set up a trust to provide for their own personal care when they become infirm or cannot look after themselves any longer. The Trustees will allocate funds to care-workers, rest-homes or whatever else might be required to look after that person in their old age.
Providing for special needs children is another common reason people create trust funds. For example, if you have a child who is mentally ill or physically disabled then the Trust can provide for them financially in your absence.
Perhaps the most common thought behind a trust is to protect it from creditors. This is particularly useful if you own a business.
Setting up a trust on the North Shore
Let us look on how to set up this trust. The law requires that that the wording involved in setting up a trust be precise and that is why a solicitor is required to set up a family trust. The law is so complicated that it is best to go to a specialist North Shore trust lawyer rather than a general solicitor.
The other requirement is to choose trusted people who will be your trustees to your trust funds. Most people choose family friends or close friends to be their trustees. This are people we can easily trusts and rely on anytime. Regardless of this, one should think carefully and choose responsible people.
Managing a Trust
The law also requires that a trust is managed according to certain rules and intentions. The management of a trust is very specific and failure to do so can result in your trust being investigated. In recent times many hundreds of people have been found to transgress the Trust laws and have had to pay millions of dollars in penalties to the IRD. For this reason, it is a good idea to have a trust management professional such as a lawyer. Some bigger law firms like McVeagh Fleming Partners have their own trust management department.
You could also have the lawyer act as a Trustee. This will show the IRD that your trust is being managed with the correct intent and not as a means of defrauding the tax department.
The law also requires that a trust is managed according to certain rules and intentions. The management of a trust is very specific and failure to do so can result in your trust being investigated. In recent times many hundreds of people have been found to transgress the Trust laws and have had to pay millions of dollars in penalties to the IRD. For this reason, it is a good idea to have a trust management professional such as a lawyer. Some bigger law firms like McVeagh Fleming Partners have their own trust management department.
You could also have the lawyer act as a Trustee. This will show the IRD that your trust is being managed with the correct intent and not as a means of defrauding the tax department.