Many New Zealanders choose to put their assets into a family trust to help protect assets from claims made against individuals.  It may also be a good way to ensure that assets such as investment properties can benefit successive generations. A trust is not a separate legal entity.  The trustees are personally responsible, personally liable and own the assets, they just do so subject to their obligations to beneficiaries.

A trust is established to hold assets on behalf of its beneficiaries – in the case of family trusts, beneficiaries are usually family members.  The trustees are the legal owners of the trust, but they cannot use it (or the trusts' assets) as their own personal property.  Trustees are typically family members, but often also include an independent trustee – for example, the family accountant or solicitor.  Trustees must act in accordance with the Trust Deed, legislation and in the best interests of the trust.

A family trust can be an effective form of ownership when the investment property is likely to produce a profit.  That’s because, depending on the terms of the Trust Deed, the profit may be able to be distributed amongst the beneficiaries and taxed at their personal tax rate.  For example, if the rental income is being used to fund your children’s education it will most likely be taxed at 19.5%.  However any losses from the investment stay in the trust and cannot be used to offset personal income tax.

Trusts are typically set up by your solicitor.

Advantages

• Trusts may separate and protect personal and any associated business assets from investment assets.
• You may be able to distribute income amongst beneficiaries.

Disadvantages

• Set up costs for a family trust are around $2,000, and there will be operating costs, particularly if an independent trustee is used.
• Losses stay in the trust and can’t be used to reduce personal income tax.
• Ownership of the property is held by the trustees, so you have less control over it than in individual ownership.
• Very complex to administer.

This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.