By Tony Richardson
In the past the answer in the majority of cases was yes!
A Trust for yourself, your loved ones and maybe charities if set up early enough was a great way to provide asset protection in the event of business failure or relationship breakdown, to manage assets in the event of mental incapacity and to flexibly cope with changes – especially the unforeseen or unlikely – over a lifetime.
Potentially the ability to access a rest home subsidy if needed was also available.
For many this was the super fund with passive income from investments providing income in retirement.
Changes back in 1993 to abolish estate duty and gift duty eliminated the need for mirror trusts (each Trust owning half the assets for the benefit of one spouse and descendants). This made Trust setup and administration simpler and more affordable.
Has the situation changed?
Yes, because more consideration is now needed before embarking on a Trust setup.
Changes have come about in several areas:-
1. The Courts, where
a) there is a willingness to “break” the Trust to give each partner in a relationship 50% of matrimonial and maybe other assets,
b) a “sham” or pretence trust can be alleged i.e. where it is not real,
c) where powers of Trustees or others are given or used inappropriately,
d) a “constructive trust” can be treated as existing in cases where others have contributed to trust assets in expectation of an interest in those assets,
e) trustees give themselves unauthorised benefits, or
f) trustees are incompetent.
2. The Beneficiaries
This usually arises where:-
a) trustee discretions are alleged to have been exercised unfairly,
b) investment policy or implementation has been inappropriate or inadequate,
c) trustees have mismanaged the Trust.
3. Ministry of Social Development
Asset testing is now more vigorous with considerable effort put in to effectively bring trust assets into the asset “net” and add in deemed income on interest free loans. This eliminates many from rest home subsidy entitlement.
In my view a specific law change will be made in the medium term to avoid paying a subsidy to those with assets in a Trust. This will be on Government fiscal grounds.
who seek to claw back assets from, or payments to Trusts.
Management of a Trust is now just that – a job that requires time, skill and judgment. Often advice will need to be sought and followed.
Independent Trustees, in my opinion, are crucial but will need to be paid to recognise the contribution required.
Is a Trust now too hard?
For some the answer will be yes.
The level or cost and administration required will not be justified on the basis of the level of assets held.
For others it is more crucial than ever. If you are a professional, in business or have inherited family wealth, then a Trust is vital. This is to protect the value of what you have and its growth in value in the future while managing it flexibly over the years as circumstances inevitably change.
We can provide advice for you or refer you to legal experts in this field if you wish to discuss any aspect further.