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The Professional Trustee Team

Family Trusts Explained

Everyone tells you to put your assets into trust and they even tell you what benefits a trust will bestow upon you, but very rarely does anyone take the time to explain what a trust actually is.

Well this blog post is going to do just that.

What Actually IS a Family Trust?

A trust can be described as many things and is often thought of as a device, a holding vessel or a protection vehicle. Sometimes it's helpful to think of a trust as a concept and if I apply this analogy I would liken a trust to a ship, travelling over high seas. The captain and his staff are charged with steering the ship, looking after the passengers and the ship's cargo. Thus, the captain and his staff are the trustees. The passengers are the beneficiaries and the cargo can be thought of as comprising the assets of the trust.

But in my view however, a Family Trust is a whole lot more than simply a device or a concept. It's more a collection of relationships. The person creating the trust (called the settlor) has a relationship with the people they put in to run the trust for them (called the trustees). The people in charge of running the trust also have a relationship but their relationship lies predominately with the people the trust has been set up for (called the beneficiaries).

So in a trust a daisy chain effect is occurring. The settlor places their faith in the trustees to run the trust in accordance with the rules they have laid down in the trust deed and the beneficiaries place their trust in the trustees to look after the assets of the trust and to act in their best interests.

For those readers who want to know how a trust is defined in legal speak, it's often been said a trust comprises a set of equitable obligations with the trustees owing obligations to look after the property they have control of for the benefit of the beneficiaries.

How Long Does A Family Trust Go On For?

How long do all these relationships go on for? Well that will depend.

First, the trustees generally, in the ordinary course of events, will only owe an obligation to a beneficiary whilst they are actually a trustee. So as soon as they retire or resign as a trustee, their obligations cease.

Secondly, all these relationships will come to an end when the trust ends. When does this occur? In the first instance, it will be within 80 years of the trust being set up because a trust cannot exist for more than 80 years at law.**  But in some cases, a Trust is brought to an early end by the Trustees. This process is called 'early vesting' and it simply means bringing the date that is specified in the trust deed forward. So when this happens, all the relationships will cease as well.

**Update 2021: Since this article was first written, there have been changes to trust law. One of those changes is that a trust can now exist for 125 years. 

Why Would You Even Want A Family Trust?

Lots has been written about the reasons why someone would want to set up a trust but in the main, there are four motivations for creating a trust:

Reason 1 – Asset Protection

In my view, this is probably the primary rationale for setting up a trust – to move assets into the trust so they become protected against creditors, WINZ and other parties. But remember, if the documentation isn't correct and if the transfer documents don't contain those special Hawkins and entrenchment clauses we so often talk about, asset protection will indeed be threatened.

Reason 2 – Tax Minimisation

I've said it often enough – no one wants to pay more pingers to John Keys than what they have to. Trusts, if established correctly, can help you legally minimise your taxation liabilities. A caveat applies, however. You must take specialised advice when setting up trusts and other structures to ensure the structure is tailor-made to suit you and your circumstances.

Reason 3 – Asset Testing

I've already written a blog about asset testing so there isn't much of a need to say anything lengthy here except this – if you need help in the form of a subsidy from the government, such as a rest home subsidy, you will be means tested. If you own nothing, the subsidy will be available immediately. Moving assets to a trust under the GRA method means you will be asset poor but you will have control over the assets that are held by the trustees of your trust. Remember the GRA motto – own nothing but control everything!!!

Reason 4 – Provision for Future Generations

Often a family will acquire assets and will want to ensure future generations can enjoy those assets. For example, Mum and Dad might buy a Kiwi bach and want their children and their grandchildren to be able to enjoy it for years to come. One way of ensuring the asset is protected for future generations to use and enjoy is by putting it in a trust with specific trust deed provisions so that the trustees cannot sell the asset in future times.


From reading this article you might already know how I think a Family Trust can be explained. Simply put, I believe it's a whole set of relationships which help you lose your tie and keep your shirt. Those relationships help you relax because by their very existence they protect your hard earned assets now and in the future for you and your family.

So ... if you want a bit of peace of mind and if you are serious about protecting what's yours, please contact us to discuss establishing a trust. Alternatively, if you already have a trust in place and want to ensure you get the very best out of it, call me and I will help you travel those high seas safely.

Best wishes,

Professional Trustee Services

Gilligan Rowe + Associates Ltd
Chartered Accountants

Email: [email protected]

Ph: +64 9 522 7955

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The Professional Trustee Team
The Professional Trustee Team
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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