Last updated: Friday, 11 July 2014 | Rāmere, 11 Hōngongoi, 2014

Many whānau are establishing trusts to protect family assets. Operation of trusts and duties and responsibilities of trustees are set out in the Trustee Act 1956 and in the trust deed.

The main advantages of a trust are:

  • The trust property is protected from creditors of the whanau and in most cases from property sharing following marriage or relationship breakdowns
  • The Trustee Act 1956 gives wide powers to trustees to deal with trust property
  • The trustees have a duty to invest and manage the trust's property prudently
  • Trustees can limit personal liability
  • Beneficiaries can apply to have the trust audited
  • The High Court has power to appoint new trustees
  • The instrument used to create the trust can be tailored to reflect the trustees' requirements

The main disadvantages of a trust are:

  • Can be expensive to set up
  • Administration more difficult as bound by trustee law rather than corporate law
  • Governance and accountability structures are not necessarily as well defined as those for a company under the Companies Act 1993
  • No requirement to identify individual owners

Suitability of a Trust structure

The trust structure is suitable for the preservation of assets but is not necessarily so well suited for commercial purposes. Trusts are ideal for those whanau who wish to protect their assets such as the family home, personal assets and taonga from creditors or a relationship breakdown.

What do Trusts do?

Trusts exist fundamentally for the protection of assets. They can give protection from:

  • Creditors, if you are exposed to financial risk because of the nature of your business.
  • Claims by a child's spouse or de facto partner. Putting assets into a trust for your child rather than gifting them outright, protects those assets from being claimed by that child's partner on a relationship breakdown.
  • Similarly assets can be protected from being dissipated by spendthrift children or can be set-aside for a child with special needs.
  • If assets have been held in a trust for a sufficient time, they are unlikely to have to be used for the rest home care of the person making the trust.
  • Death duty or inheritance tax while not currently imposed in New Zealand can be avoided or minimised by the use of a trust.
  • Trusts can be helpful in reducing income tax, but it is very important to realise that a trust set up solely for the purpose of avoiding tax, will be invalid.