Protecting your assets with a Family Trust: Moving beyond your Will

Recently I wrote about Wills, and how drafting of your Will can have a massive impact on who inherits your assets. But in some instances a Will can fall short of achieving desired inheritance outcomes and can give rise to messy estate disputes, relationship property claims and so on. Sometimes, setting up a simple Family Trust can be a much better option, instead.

A recent scenario was clients wanting to make Wills with the aim of ensuring their family home property, holding special historic and sentimental significance, was protected and kept in the family for future generations – and for as long as possible. Their primary concern was to ensure protection from any potential relationship property claims attaching to their children’s inheritances in the future (or either client in the event one passed away before the other!), and for certain family members to look after the property but for the children to have ultimate ownership. Other concerns included protecting the property from their business interests, and avoiding wider family estate disputes. It was quickly evident that the asset protection they wanted couldn’t be achieved by their Wills alone and was instead best met by a simple Family Trust set up now, whilst they were both still alive.

A Family Trust lasts 80 years maximum, and can be useful to help:

Ensure your children keep any inheritance, and is not inadvertently diluted by relationship partners.

Protect assets against creditors or claims – eg: protecting the family home from a potential business failure, being sued, or relationship property claims (although, be warned: you won’t get away with transferring assets to trust with the purposeful intention of defeating current or foreseeable creditors, IRD obligations, or relationship property entitlements, so be sure you seek the right legal advice here.)

Set aside money for special reasons, such as a child or grandchild’s education, medical needs or other means of support.

Reduce the risk of estate claims after you pass away by a disgruntled relative, partner or former partner, or a testamentary promises claim.

People often think that Family Trusts are only for ‘wealthy’ people with valuable assets. This is not necessarily true. New Zealand has one of the highest usage of Family Trusts in the world and, if you ask around amongst your colleagues, friends and wider family, you’d be surprised who has or knows of one somewhere in their family.

Setting up and looking after a simple Family Trust is relatively straightforward with the right legal advice and guidance. If you are wanting to achieve any of the Family Trust protections mentioned above, the sooner you talk to a lawyer to get the wheels in motion, the better.

by Roslyn Morshead, of Rotorua’s Morshead Law             ros@morsheadlaw.co.nz