Family Trusts

Many business commentators have referred to New Zealand as being a "world leader" in terms of the number of trusts, and having an estimated 400,000 in existence the argument is quite strong.

We all have, or at least know of someone that has a trust and the reasons for them can be many and varied, such as:

• Protection of assets from creditors
• Protection of personal property in the event of a relationship breakdown
• Protect assets from disgruntled family members
• Protect assets from irresponsible children and their spouse/partner
• Spreading of Trust income among beneficiaries
• A trust can continue after the death of the settlor

Whether a trust is a good idea depends on personal circumstances.  They can have a valuable role to play, but they are not suitable for everyone.

A large percentage of trusts that have been set up are not administered correctly, including an intermingling of trust and personal funds, no recording of minutes and decisions made and insufficient recording of trust assets and liabilities.  Potentially, these trusts can be overturned as being a "sham". 

Following the financial services meltdown and a history of non-compliance and bad practice, trusts have been under review by the Law Commission. Likely outcomes of this review are:

• Government regulation of trusts
• A register of Trusts, similar to the Companies Office register of companies
• Accountability for actions, particularly for trustees
• Sanctions and penalties for non-compliance

In the first instance, those sanctions and penalties will apply to individuals who do not understand and fulfill their role as Trustees.  It is therefore important that anyone being asked to be a trustee fully understands their duties and obligations.