By Peggy Davis,2014-07-10 15:51
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Garth Melville is a Chartered Accountant with 30 years experience in chartered

    accountancy and business. He is the Managing Director of Company Solutions

    Limited based in Auckland, which specialises in advising and forming companies,

    family trusts and other tax effective business structures as well as advising on and

    registering trade marks.

He formed his first family trust in 1981, and further trusts for his own family‟s use, and

    has since specialised in family trusts by providing advice on and forming trusts for




    The concept of a trust dates back to the time when the

    Normans conquered England mid-way through the 11

    century. The trust concept has been developed over the

    centuries, and has now become one of the most effective

    asset protection, tax and estate planning techniques


The trust concept under English law has been described as the “the gifting of a sum

    of money or item of property (the settlement sum or initial trust fund) by one person

    (the settlor) to another person or corporation (the trustee) to be held and

    administered for the benefit of a class of persons (the beneficiaries) in accordance

    with specified instructions (the deed of trust).” (see Appendix 1)

Family Trust

    Family Trust is a conventional trust but is prepared with the principal parties being

    within a family.

NZ background

    The majority of early family trusts in this country were prepared for farming families in

    main farming districts such as Canterbury, Hawkes Bay, Waikato and Taranaki. Also

    for wealthy families and professionals who had access to the information. In more

    recent years improved access to this information on family trusts, and with the fees

    becoming affordable many other New Zealanders have been able to take advantage

    of this entity.

    ? Company Solutions Limited 2003



Reasons for considering a Family Trust

    1) Asset Protection and Estate Planning

    i) Separates the personal assets from business risk. Companies achieve this from

    a shareholders point of view, but a company director still has business risk.

    Trusts can assist in protecting your assets from creditors‟ claims.

ii) Many people have their assets jointly owned. In law, all jointly owned assets

    automatically pass to the surviving partner. Also many people leave all their

    assets in their wills to their surviving partner, then on his/her death to his/her

    children. This results in the survivor and later your children inheriting your joint

    savings later in life, with few asset protection options available.

iii) If you do not plan at an early enough age, you could lose much of your hard

    earned wealth through user pays charges and taxes. E.g. rest home or long-

    term hospital costs, capital gains tax, estate duty and/or superannuation and

    tertiary level student subsidy.

iv) The trustees can often better control distribution of estate wealth to beneficiaries

    by way of trust distributions, rather than by total inheritance by children. This

    can prevent a child from wasting the capital inheritance as well as preventing

    your children‟s partners benefiting.

v) Relationship considerations. Could be more effective than only pre-nuptial

    agreements. Better control in protecting assets from Property (Relationships)

    Act 1976 claims if you marry or remarry as well as claims from de facto or same

    sex partners.

vi) Enables repositioning of mortgages on real estate and can result in improved

    interest deductibility (see Appendix 2. for example).

vii) Flexibility is retained for future changes to your family circumstances, legislation

    and Court decisions.

    2) Tax Benefits for a Trust earning income (see

    Appendix 3. for example) stFrom the 1 of April 2000 persons pay income tax at

    the rate of 19.5% on income up to $38,000, 33% on

    income above $38,000 but below $60,000, while

    above $60,000 the rate is 39%. Since the beneficiaries

    of the Trust are usually family members (spouse,

    children etc.) income can be shared amongst all family

    members in many situations, enabling each person in

    the family to earn no more than $38,000. Thus savings can be achieved of 19.5%. The Labour Government has introduced a 33c

    tax on trust distributions to minor beneficiaries, (those under 16 years of age). There

    is however an exemption of the first $1000 of the distribution which attracts a tax rate

    ? Company Solutions Limited 2003



    of 19.5% Thus this particular tax savings has been reduced for those with minor children.

    Note: For IRD purposes any savings in tax must be incidental to the overall purpose of the Trust. Care is required when venturing outside the tax square.

Other considerations prior to establishing a Family Trust

    1) The net asset value of the individual (or partners). Is there sufficient value to warrant a trust?

    2) Are the assets likely to appreciate in value? (e.g. real estate, shares, yes. Most vehicles, no)

    3) Age of the Settlor/s- how many years will it take to gift the value of asset/s transferred?

    4) Can income be earned by the trust, and if so can tax savings be achieved? 5) Confidentiality. There is no register of family trusts. However if the trust earns

    income it must be registered with the IRD and tax returns filed. Land titles and

    Share Registers make no mention of a trust. Instead all the trustees names are

    listed as the joint owners.

    6) The designated recipients life insurance policies will likely need to be changed to the trust.