Are Family Trusts Still Worthwhile?

Read More

FilesAre Family Trusts Still Worthwhile?

The family trust gained popularity as an ownership structure for property and investments to help minimise tax and estate duty and maximise entitlement to residential care subsidies. The abolition of estate duty some years ago, reduced income tax benefits and the increased scrutiny placed on trusts within residential care subsidy applications have all lessened the importance of some of the key benefits of family trusts. However, this does not mean trusts no longer serve a useful purpose.

Trusts are expensive to operate. There is the cost of establishing the trust, the cost of preparing an annual tax return for the trust if it owns income-producing assets, and the annual cost of administering the trust. These costs must be compared to the benefit gained from the protection of assets from a variety of different risks as well as other ancillary benefits. Trusts can provide protection against a number of potential risks, of which the key ones are:

  • The possible reintroduction of estate duty
  • Claims on personal assets by business creditors
  • Relationship property claims

Trusts can also offer benefits, such as the ability to split income to family members on lower marginal tax rates, ease of transition of assets on death, and safeguarding of assets for vulnerable children.

The purpose of establishing a trust should be clearly identified. Trusts which have been established for the sole purpose of avoiding tax or increasing eligibility for government subsidies are unlikely to withstand scrutiny. It is important that trust administration and record keeping be diligently attended to if the trust is to be considered genuine, or not a ‘sham’. Consideration needs to be given to which assets should be held in the trust and how the trust should be structured. Due to the complexity of issues, good advice from a solicitor and accountant is essential.

Related Articles

Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.