Should you keep, ditch, or set up a trust?

At GRA we have seen an increasing number of clients come to us after being advised to wind up their trust, or after being discouraged from setting one up at all, having been told that trusts don’t really provide any significant advantages.

The reasoning is often straightforward: trusts generally don't provide the tax advantages they once did, and the ongoing legal and accounting costs and obligations can seem difficult to justify.

For some families, that advice will be absolutely appropriate – either because circumstances have changed and their trust no longer serves a meaningful purpose, or because a trust was never really going to be necessary for them in the first place.

However, we don't believe a trust should be discarded simply because of its annual compliance costs, or dismissed as unnecessary simply because it won't save tax. Before making that decision, it's important to understand why the trust was (or would be) established in the first place, and whether those reasons still exist today.

The value of a trust rarely lies in tax savings. Instead, it lies in the protection and certainty it can provide. A well-structured trust can help safeguard family wealth, protect assets from unforeseen events, preserve inheritances for future generations, provide certainty for blended families and support long-term succession planning.

These benefits often go unnoticed because nothing has gone wrong. It's only when circumstances change – through a relationship breakdown, business failure, creditor claim or unexpected death – that many families realise just how valuable their trust is (or would be if they had one).

Before making a decision, ask yourself one simple question:
What protections would my family be giving up – either by winding up an existing trust, or by never setting one up at all?

In this article we list five reasons why families should think carefully before deciding that a trust isn't worth having.

Key Takeaways

•  The real value of a trust today is protection and certainty, not tax savings: guarding against business or creditor claims, relationship property splits, and unintended inheritance outcomes.

•  Winding up a trust (or never setting one up) shouldn't be a default decision based on cost alone – it should follow a review of whether your original reasons for it still apply.

1. Does a Trust Protect Your Wealth as It Grows?

The more wealth you accumulate, the more important it becomes to think about protecting it.

A trust separates legal ownership of assets from personal ownership. While it isn't a magic shield against every risk, it can provide an additional layer of protection when properly established and administered.

This becomes increasingly relevant as:

•  Your investment property portfolio grows

•  Your business becomes more valuable

•  You accumulate significant investments

•  Your family's net worth increases

Many people don't establish a trust because of what they own today. They establish one because of what they expect to own in 10 or 20 years' time.

2. Can a Trust Limit Your Personal Liability?

Business owners, company directors and professionals face greater personal risk than many salaried employees.

Companies, limited liability, and insurance are all important protections, but they don't remove every potential exposure.

Holding substantial investment assets personally may expose them to claims arising from your business or professional activities.

A trust can form part of a broader asset protection strategy by separating long-term investments from your personal balance sheet.

Of course, trusts are not a mechanism to defeat legitimate creditors, and transferring assets after problems arise is generally ineffective. Good asset protection planning is undertaken well before it is ever needed.

3. Does a Trust Protect Assets in a Relationship Split?

No one enters a relationship expecting it to end.

Unfortunately, relationship breakdowns are one of the most common reasons people seek advice about trusts.

Assets accumulated before a relationship, inherited from family members, or intended to remain within a family can become vulnerable if appropriate planning hasn't been undertaken.

Trusts are not a complete solution, nor do they replace contracting out (“pre-nup”) agreements, but together they can form an important part of protecting family wealth.

A real-life example

We recently worked with a client who owned her home outright before entering a new relationship. After they married, her husband moved into the property and it became the family home.

Unfortunately, the relationship broke down several years later. Because the property had become the family home during the relationship, our client was required to share its value with her former spouse, despite having purchased and largely funded it herself before the relationship began.

What made the outcome particularly frustrating was that her former husband had retained significant investments in his own name, which remained separate property and were not subject to division. This is because the “family home” gets special treatment when relationships end. Unless it is in a trust (established before the relationship) or there is a clear contracting out agreement, the home is considered shared property, and so gets split 50-50. Other pre-relationship assets, on the other hand, are generally treated as separate.

Every situation is different and depends on the facts and the law at the time. However, it demonstrates why planning should occur before a relationship begins, or assets are placed at risk.

4. Can a Trust Protect Your Children's Inheritance?

Building wealth is only half the challenge.

Ensuring it survives for future generations is often far more difficult.

Without proper planning, family wealth can quickly disappear through bankruptcy, divorce, or poor financial decisions, or assets can unintentionally be passed to people you never intended to benefit. 

A trust allows wealth to remain under the stewardship of trustees while continuing to benefit children and future generations.

A real-life example

We've worked with families who have spent decades building significant wealth, only to see one of their children experience financial hardship through business failure or the breakdown of a marriage.

In one case, the parents were concerned that if they left assets directly to their child, those assets could become exposed to creditors or form part of a relationship property dispute.

Instead, their estate planning directed those assets into a discretionary family trust.

The child could still benefit from the family's wealth, but the assets themselves remained protected for the long term. The trust also provided flexibility for future generations, allowing trustees to decide when and how distributions should be made.

Sometimes the greatest benefit of a trust isn't protecting your own wealth; it's protecting your children's inheritance.

5. Do Blended Families Need a Trust for Estate Planning?

The traditional nuclear family is no longer the norm. Today, many families are blended, with both partners bringing children, assets and financial commitments from previous relationships.

This creates estate planning challenges that many people don't consider until it's too late.

A real-life example

A client came to us after entering a second marriage later in life. He had accumulated a substantial investment portfolio before meeting his new partner and had two adult children from his first marriage. His wife also had children from her previous relationship.

Like many couples, his instinct was simple: leave everything to his wife, trusting that when she eventually passed away, the remaining assets would be shared fairly amongst all the children.

The problem was that there was no legal obligation for this to occur.

If his wife later changed her Will, remarried, or simply decided to leave her estate to her own children, much of the wealth he had spent a lifetime building could ultimately pass outside his family. His children could receive little or nothing.

By restructuring his estate planning and using a family trust, he was able to provide for his wife during her lifetime while preserving the underlying assets for his own children. His wife continued to have financial security, but there was also certainty that the wealth he had accumulated would ultimately pass to the people he intended.

Blended families often create competing interests, not because anyone has bad intentions, but because circumstances change over time. Trusts, together with contracting out agreements where appropriate, can help provide certainty and ensure that your estate plan reflects your wishes rather than leaving the outcome to chance.

Estate planning isn't about expecting the worst. It's about ensuring the wealth you've spent a lifetime building ultimately benefits the people you intended.

Is a Trust Still Worth It? (The Bottom Line)

A trust isn't right for everyone.

If your affairs are straightforward, your asset base is modest and there are no significant asset protection or succession concerns, the ongoing compliance costs may outweigh the benefits.

However, if you're building wealth, operating a business, investing in property or thinking about preserving assets for future generations, a trust may remain one of the most valuable planning tools available.

The key is ensuring your trust is established for the right reasons, properly administered and regularly reviewed to ensure it continues to meet your objectives.

At Gilligan Rowe & Associates, we regularly review trust decisions for clients, whether they've been advised to wind up an existing trust or advised against establishing one in the first place. Sometimes that advice is appropriate. Often, however, a trust will provide benefits that far outweigh its annual compliance costs.

Before deciding to unwind a trust (or deciding not to set one up at all), make sure you're considering not just what you'll save, but also what you might be giving up. Seek advice from experts in asset protection and estate planning before making your decision. If you’d like to talk to us at GRA about trusts, please fill out our online form or phone us on 09 522 7955 – we would love to help you. 

FAQ: Trusts and Asset Protection

Does a trust still save tax?

Not in the way it once did. Trusts generally don't provide the tax advantages they used to. Their real value today lies in asset protection and succession planning, though income distributed to beneficiaries can still be taxed at their own, often lower, personal rates.

Is a trust worth the ongoing compliance cost?

It depends on your circumstances. If your affairs are straightforward and your asset base is modest, the compliance costs may outweigh the benefits. If you're building wealth, running a business, or investing in property, the protection a trust offers can outweigh the annual costs.

Does a trust protect assets in a relationship breakdown?

It can, but it isn't a complete solution on its own. A trust established before a relationship begins can help keep assets, including what would otherwise become the family home, outside a 50/50 split. It works best alongside a contracting out (“pre-nup”) agreement.

Can a trust protect my children's inheritance?

Yes. Assets held in a discretionary family trust remain under trustees' stewardship, which can shield an inheritance from a child's future creditors, business failure, or relationship property claims, while still allowing that child to benefit.

Is a trust useful for blended families?

Yes. Without one, there's no legal obligation for a surviving spouse to pass remaining assets on to a first marriage's children. A trust can provide for a spouse during their lifetime while preserving assets for the children a person originally intended to benefit.

Should I wind up my existing trust?

Not necessarily just because of compliance costs or a lack of tax benefit. It's worth revisiting why the trust was set up in the first place, and whether those reasons still apply, before deciding to unwind it.