You don’t have to go very far these days to find instances where Trusts have been attacked and challenged. These challenges can come from a number of different people, such as the IRD, the Official Assignee, creditors, disgruntled beneficiaries and unhappy spouses and de facto partners. The grounds for attack and challenge have been wide and varied, for example:
- Structural issues in respect of the Trust and Trust Deed itself including the validity of the Trust;
- Administrative issues concerning the on-going management and governance of the Trust;
- The exercise of powers by Trustees and whether the Trustees have correctly carried out their duties and obligations to the beneficiaries; and
- Whether the Trust has had the effect of improperly defeating the claim or rights of another party.
In this climate, some commentators have argued that Trusts have had their day. However, in the right set of circumstances and with sufficient attention to the administrative requirements, Trusts can still provide a useful asset protection and succession planning tool.
Creditor protection
If you own your own business, there are advantages to moving assets out of your personal name and into a trust to protect those assets from attack should your business venture fail. It is important however to remember that the Official Assignee or a creditor can seek to set aside a Trust where it was formed with the intention to defeat the Official Assignee or creditors, so it is important to ensure that the Trust is formed well prior to there being any business solvency or financial concerns.
Claims against your Estate
Moving assets out of your personal name and into a Trust during your lifetime means that those assets will not form part of your Estate when you die and therefore will not be subject to any claims made against your Estate under the Family Protection Act or Testamentary Promises Act. Transferring assets to a Trust in your lifetime can ensure that assets are transferred with greater certainty and with more likelihood that your intentions and wishes will be carried out.
Relationship Property
Trusts can serve to ensure that assets are kept protected against a claim under the Property (Relationships) Act 1976. If a de facto partner or spouse makes a claim, assets that are held by a Trust, preferably formed prior to entering into a relationship, and that have been kept entirely separate of any other relationship property assets, can be protected. We would recommend that in conjunction with a Trust, you also have a Contracting Out Agreement.
Charitable purposes and the protection of the vulnerable
For those that wish to do good deeds for mankind and society in general, a Charitable Trust set up to specifically hold and protect assets for charitable purposes can enable people to support meaningful causes in a lasting and enduring manner.
Additionally, Trusts can work extremely well in situations where funds are required to be set aside for intellectually or disabled family members, for someone who has alcohol or drug dependencies or for someone who may be hopeless with money and vulnerable to attack because of this.
There are considerable advantages to forming a Trust. However, Trusts are not appropriate for everyone in every situation and it’s wise to always ensure that before the Trust is formed, the reasons for forming the Trust have been canvassed and the risks which the Trust seeks to protect against are clearly identified by all parties.
Glenda Graham is a Partner in the Succession and Wealth Protection Team at Norris Ward McKinnon. You can contact Glenda at [email protected]
