Is your nest egg secure

11 Reasons why You Should Consider Setting up a Trust

Setting up a Trust to protect financial assets can offer various benefits, depending on your financial situation and goals. While there have been changes in legislation and judicial interpretation that have influenced the effectiveness of asset protection trusts, the trust structure can still be considered as a vehicle for asset protection. Here are some key points to keep in mind regarding asset protection through trusts:

  1. Asset Protection: Trusts offer a level of protection from potential creditors, lawsuits, or legal claims. Assets held in a trust are often shielded from certain legal actions, providing security for your wealth.
  2. Estate Planning: Trusts are powerful tools for estate planning, allowing you to specify how your assets will be distributed after your death. They can help avoid probate and ensure that your assets are managed according to your wishes.
  3. Tax Efficiency: While tax laws used to provide tax advantages to trusts, including lower tax rates for income earned within the trust compared to individual tax rates, this is all gone now. However, what remains is the ability to split and distribute income between the trust beneficiaries, potentially reducing overall tax liabilities.
  4. Continuity: Trusts offer continuity in the management and ownership of assets, even after the death of the settlor. This ensures that assets are preserved and managed for the benefit of future generations, providing long-term financial security. For full disclosure this can be done with a company too. However, companies do not have Point 5.
  5. Privacy: Unlike a company, Trusts provide a level of privacy, as the details of trust assets and distributions are typically not part of the public record. This can be advantageous for individuals who wish to keep their financial affairs private.
  6. Flexibility: Trusts can be tailored to suit individual needs and circumstances, allowing for flexibility in asset management, distribution, and beneficiary arrangements.
  7. Charitable Giving: While not common to most ‘Mum and Dad’ trusts, trusts can be used for charitable purposes, allowing individuals to support causes they care about while potentially gaining tax benefits. Charitable trusts can be established to provide ongoing support to charitable organisations or causes.
  8. International Planning: New Zealand’s trust laws are well-regarded internationally, making it a popular jurisdiction for individuals with assets or beneficiaries in other countries. Trusts can be effective tools for international estate planning and asset management.
  9. Business Succession: Trusts can play a vital role (from personal experience here) in business succession planning, ensuring a smooth transition of the ownership and management of business assets to chosen successors, while providing asset protection benefits.
  10. Personal Protection: Well-structured and well run trusts can shield trust assets from matrimonial splits and minimise the loss of hard earned business income.
  11. Professional Management: Trusts allow for professional management of assets by appointed trustees. This can allow an inheritance or payout to be managed responsibly through their expertise in investment, financial planning, and asset administration, and not just blown in a few poor choices.

It’s important to remember that setting up and managing a trust can be complex, and it’s advisable to seek professional advice from lawyers, accountants, or financial advisors familiar with New Zealand’s trust laws and regulations, to maximise the effectiveness of asset protection strategies. Additionally, the specific benefits and considerations of using a trust will vary depending on individual circumstances, so what works for one person may not be suitable for another. For this reason, a Trust should be tailored for individual needs and fine tuned to make sure you get the best out of it. One size does not fit all and the ‘standard’ Trust deed is seldom the right fit.

A trust professional should help you customise and set up a Trust that is appropriate for your specific circumstances and assist you in running it for years to come. So make sure that you work with someone you don’t mind working with.


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