How to protect your assets by forming a Family Trust
When you work hard all your life and manage to build up a reasonable portfolio of assets, it is important to protect them from a range of various potential threats. These can range from taking steps against tax future issues, protection from business failure or preserving family assets from dissolution. Each family will have different circumstances and so their needs will be different too.
This article is brief overview of some of the issues involved in establishing a family trust.
However, please note, this is a complex area of law covering multiple issues not least of which is tax and ownership of assets. The content here does not constitute legal advice – you must talk to a family trust lawyer at the earliest opportunity.
- Wealth by Stuart Miles
Reasons to form a family trust
There are many reasons people choose to form a family trust. Below are a few of the more common ones.
Using a trust to protect your assets
Many New Zealanders own their own business. They work hard to create an income to support their family often making sacrifices of time with the family. Over time, they are able to invest in a range of assets for example these can include investment properties, a boat, shares, other investments vehicles and of course, the family home. It makes sense to protect those hard-earned assets as best as possible.
However, business is always a risk. Even if your business is a well-run operation, suppliers, customers or external economic conditions can suddenly cause a dramatic change in the fortunes of that company. This can put many investments at risk especially the home if it has been used as collateral for financing from a bank or other lender. To put this into perspective, almost 90% of small businesses fail in the first five years.
However, if your assets are in fact owned by a trust, then they may be protected from claims on your personal situation or creditors. The key word here is “may” since the timing of the trust formation is a key factor. There are of course other legal factors such as the terms of the trust deed but a well written trust document should be able to give some security to any assets you decide to put into the trust.
- 3d person Debt by renjith krishnan
Relationship property and family trusts
Often someone wants to get into another relationship with a new spouse but a concern may be the assets they own and want to be able to pass onto their heirs. The common concern is that should that relationship break, then the spouse would have a claim on the relationship property.
However, if that person forms a family trust and puts their assets into that trust prior to forming any new relationship, those assets may be protected from any relationship property claims under certain circumstances. This is because the individual does not own those assets; they belong to the trust. Therefore, that person does not have any property to share with their ex-spouse. As usual, you must speak to a lawyer before you decide on this course of events.
Keeping traditional family assets
Typically, when someone dies, their estate is split among heirs and beneficiaries. However, if a family has a significant asset which they do not want to split such as a large tract of land or a valuable piece of art, this can cause serious problems both before and after that person’s death. They may worry about who should become the new owner or after their death, family members may challenge the Will of the deceased. This is a common situation.
One way of avoiding these issues is to put that asset into a Family Trust so that no single individual owns that asset. Some family members may be Trustees and also beneficiaries of any revenues generated by the Trust, for example, profits from a farm held in trust. However, if the Trust is established correctly and in due time, then that asset is generally protected for the benefit of the family as a whole minus any squabbling over ownership.
Final words on forming a family trust
A Family Trust can certainly be a useful legal vehicle for owning, protecting and passing on a range of assets. However, this is a complex area of law which needs careful handling to provide the desired level of asset protection. Without doubt, anyone thinking of forming a trust should see North Shore family trust lawyer as the first step.
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