New Zealand has one of the highest rates of family trusts in the world – which would lead you to assume we have a pretty good handle on how they work.
Surprisingly, many of the 300,000 to 500,000 trusts in New Zealand are poorly-maintained and ineffective.
So, why do so many families have a trust? And how will they be affected by the new Trusts Act?
Why have a trust?
Discretionary family trusts are a means of protecting your assets – not just for your own benefit, but for the benefit of your loved ones and future generations. Trusts allow settlors to protect assets for their children and grandchildren, even after their own death. Blended families have trusts to provide for different branches of their families.
Trust protection is also useful for business owners and company directors who can be personally sued in certain situations.
What is the Trusts Act?
The long-awaited Trust’s Bill received Royal assent on 30 July 2019 and comes into force on 30 January 2021. That means those who already have a trust will have 18 months to make some important decisions, including:
- Do I still need a trust?
- Is my trust accounting up to date?
- Should my trust deed be updated?
- Do my trustees want to continue?
- How do I ensure my trust remains compliant with the new requirements?
Those who already have a trust – but no longer want it – will also have the next 18 months to close their trust and restructure their assets. Trustees will be in a better position to understand their legal obligations and decide if they wish to remain a trustee.
If you have a trust, now is a good time to consider your options.
Is your trust up to date?
Some family trusts hold millions of dollars of income-producing assets, and it is important that these trusts are proactively reviewed and updated before 30 January 2021.
Even if a trust only holds the family home, there should be an annual review and accounting to keep track of mortgage payments and capital improvements paid for by the settlors personally. At a minimum, annual trustee meetings should be held and recorded in writing.
Trusts are not “set and forget”
Q2 chartered accountants have been working with business owners for over 25 years, and we know that many trusts have been set up and forgotten about. This means they will probably not protect your assets. They could even increase personal risk for the trustees who are not fulfilling their fiduciary trustee duties.
Many of those who have a trust do not actually understand them. They are often intimated by trust jargon and terms such as “trust deed”, “settlors”, “beneficiaries”, “trustees”, “hotchpot”, “vesting”, “gifting”, etc.
Q2 Ltd works with settlors and trustees to help them understand the practical side of how trusts work. Q2 can guide trustees and help keep their trusts up to date. We cut through the jargon and provide practical and affordable trust administration packages. These have proven to be very popular with business owners who have a family trust.
To find out more about how Q2 can help you with your trust, click here.
Free Trust information evening
Q2 are running a free trust information evening on Wednesday 16 October 2019 to demystify trusts. Q2 will explain in practical terms what is changing, what remains the same, and what you need to do to ensure your trust helps you achieve your financial and business goals. To register, click here.