For people who are entering into a new relationship (whether it be a marriage, a de facto relationship or civil union) switching assets into a Trust could become important. This is particularly the case for people (usually older people), who have been divorced, separated, or widowed, and who wish to protect assets from a previous relationship.

Because all situations will be different it is most important that you take specialist advice in this situation.

If you put most or many of your assets away in a Trust you can protect yourself against your own creditors. However, it is important that any such transfer takes place while you are well and truly solvent so that it cannot be said your express purpose of setting up the Trust is to defeat creditors. In other words, you should do this before there are any signs of any financial problems.

It is much easier for an immediate family member to challenge distributions made by Will than to challenge distributions made through a Trust deed. In certain circumstances, a Will can be challenged.

The Trust Deed is not a public document and the Trustees need not be family members. After you die a Will becomes a public document if it is admitted to probate as the probate records of the High Court can be searched.

Therefore a Trust is very useful if you do not want people to know what you “own”. Please note however that, under the new Trusts Act, there are increased obligations to make disclosure of basic information to beneficiaries of Trusts.

By way of example, you might make a loan to a married child to help with buying a house.

If that loan is a personal one it might become intermingled with the matrimonial property, while this is less likely for a debt to a Trust. Trusts reduce the chance of such assets becoming the subject of any relationship property claim while still helping the child.

Income splitting for tax saving purposes – for example, if one of you owned a house for rental purposes all the net income would be assessed to that one. However, if you transferred the rental house into a Trust, the income could be spread amongst the beneficiaries or some of them in such shares as the Trustees decide, as appropriate, from time to time. This could result in income tax saving.

In the future, there is the possibility that capital gains tax could be introduced and estate duty or the superannuation surcharge could be re-introduced in New Zealand. A trust can be beneficial here as. In short, the idea is that, if you do not own it, it cannot be taxed to you.

Asset and means-tested benefits could include tertiary allowances, rest home subsidies, health services etc. By keeping assets and income from these assets in a Trust access to these benefits could sometimes be maximised. However, Work & Income New Zealand (WINZ) now has policies in place making such arrangements much more difficult these days.

It is important to take detailed advice in situations where WINZ enquiries may be part of the process.

It is imperative that Trustees fully understand their responsibilities. One of the consequences of not fulfilling those obligations is that a Trustee may be held liable for a “breach of Trust”.

The compulsory duties as outlined by the Trusts Act 2019 are a Trustee must:

• know the terms of the trust.
• act in accordance with the terms of the trust.
• act honestly and in good faith.
• deal with trust property for the benefit of the beneficiaries.
• exercise the trustee’s powers for a proper purpose.

Optional duties (which may be altered by the Trust Deed are:

• A trustee must exercise the care and skill in administering a trust that is reasonable in the circumstances.
• When investing, a trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others.
• A trustee must not exercise a power directly or indirectly for the trustee’s own benefit.
• A trustee must consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers.
• A trustee must not bind or commit trustees to a future exercise or non-exercise of a discretion.
• A trustee must avoid a conflict between the interests of the trustee and the interests of the beneficiaries.
• A trustee must act impartially in relation to the beneficiaries and must not be unfairly partial to one beneficiary or group of beneficiaries.
• A trustee must not make a profit from the trusteeship of a trust.
• A trustee must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee.
• If there is more than one trustee, the trustees must act unanimously.

1. Are you as Trustees fulfilling your obligations?
2. Do you fully understand the content of your Trust Deed and the obligations it imposes on you as a Trustee?
3. Are you sure all assets owned by the Trust are held in the names of the current Trustees?
4. Does your Trust have its own bank account?
5. Are you sure all Trustee decisions have been recorded correctly and reflect the documents executed?
6. Do all Trustees meet at least annually?
7. Do the Trustees maintain an up to date minute book?
8. Is your Memorandum of Wishes up to date and reflective of how you wish your Trust to operate in the event you are no longer able to give your voice?