Do I still need a Trust?
About the Author:
COLETTE MACKENZIE
Principal at Greg Kelly Law
Colette Mackenzie is a principal at Greg Kelly Law Limited, a Wellington based law firm specialising in trusts (including on separation), estates, estate planning and elder law.
Do I still need a Trust?
It’s good practice to review its purpose
If you have a family trust set up a number of years ago, it’s good practice to review it to ensure it is still ‘fit for purpose’. Leading on from that is the question that is often asked of us, “Should I bring my trust to an end?”
Trusts are still very useful arrangements, and there is usually a good reason why you established a trust in the first place. If that reason no longer exists, however, then it may be sensible to think about alternative arrangements.
Common reasons why you might consider bringing your trust to an end are:
The trust may prevent you qualifying for a subsidy if you need to go into care
If the trust was set up by your parents and they have now died, you and your siblings may have different needs
You may no longer have concerns about business creditors, and
Protecting assets from a relationship property claim may no longer be a concern.
Even if your trust is no longer required for its original purposes, there may be other reasons to retain it.
A trust may, for example, avoid disputes over your estate after you have died.
Long-term residential care
The asset testing rules continue to be enforced fairly strictly by Work and Income (MSD). There are strict limits on how much you can gift, to a trust or anyone else, throughout your lifetime. Talk with us if you have concerns about your previous gifting arrangements.
In some cases, people who are about to go into care may find they will not qualify for a subsidy because of the amounts they put in their trust in the past. If the trust assets are all put back into their own name, as settlors, they may eventually qualify for a subsidy. We can talk with MSD, on your behalf, about a possible ‘unwinding’ of your trust.
Once mum and dad have died
Most trust deeds have a clause allowing the trust to continue for up to 80 years. This is the maximum currently allowed by law. In reality, once the settlors have both died, their children may not wish to continue with the trust. The settlors’ children may each prefer to do different things with their share of the trust. Some may be living overseas where tax laws are much tougher on trusts.
When the parents have both died, it may be a good time to distribute all of the trust fund to the members of the family or to put each child’s share into a new trust. If most of the family wealth is held in a trust, the children often wish to receive their inheritances when both parents have died rather than leave assets in a trust.
Asset protection trusts
Trusts are often set up by people who are about to start a new business. They do not want the family home or lifestyle assets to be at risk of future claims by business creditors. A trust can provide effective protection if set up at the right time. Once the settlors have retired from business, there may no longer be the same need to ring fence their assets. This may be a good time to review possible termination of the trust.
The same is true of trusts set up to avoid possible future relationship property claims. If these are no longer a concern then the trust may no longer be needed.
Estate disputes
If the trust assets are transferred back into your name, they will form part of your estate when you die. You will need to deal with them in your will, but there are a number of ways in which a will may be disputed. If the assets are left in a trust, then claims about validity of the will (as well as claims under the Family Protection Act 1955 and similar laws) cannot be made against the trust.
So you need to think carefully before deciding the trust no longer serves any useful purpose.
Our advice is get advice
Trust documents should not be filed away and forgotten about. Things change and you need to reconsider whether your trust still meets its original purpose – or it could be useful for some other reason.
There are a number of factors to weigh up and it is important that you talk to us before deciding how to proceed with your trust.
Principal
Greg Kelly Law
04 498 8500
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