Author Katrina Shanks, CEO Financial Advice NZ. Article originally published in

OPINION: Trusts have long been a popular way of protecting assets in the event you or your partner require residential care, or if you need to protect your assets from creditors, business or otherwise.

And though they remain very popular – it’s estimated there are between 300,000 and 500,000 of them in existence in New Zealand – you need to be aware of changes in respect of how the Ministry of Social Development (MSD) assesses residential care subsidy applications.

MSD is able to claw back certain gifts made to a trust so those who hold assets in a trust need to be aware that they are not bulletproof.

A person going into rest-home or hospital care can apply for a residential care subsidy, but this is subject to an asset test, sometimes including assets held in a trust. If the person owns their own house which their partner lives in, and their assets are under the prescribed threshold, they may be eligible for the subsidy.

But if a trust owns the house and the couple exceeded allowable limits to progressively gift the house to the trust, they may not receive the subsidy.

To add a bit more detail – for each of the five years before the asset test, you are permitted to make gifts of $7500. Gifts made prior to the five years before making the application may be to the value of $27,000 per couple per year. Gifts over these values will be treated as assets in your financial means assessment.

In short, trusts are not always the answer to keeping your assets separate. But they do have many other advantages.

Protecting your assets

These can include protecting real property, shares, cars or other assets from creditors, should your business fail, and against relationship property claims should your relationship fail. However, it should be noted that if you have creditors who may be put at risk as a result of you making a gift, your gift may be clawed back.

This can happen in a variety of circumstances, particularly under the Property Law Act 2007 and Insolvency Act 2006. Once property is gifted into the trust, these assets are out of reach of everyone except the named discretionary beneficiaries, who can include you.

It’s one of the reasons business owners hold their shares in their family trust rather than personally.

If the asset you have transferred to a trust is a house, it can mean you will have somewhere to live, whatever happens.

You will, however, have to get the permission of the trustees before making any significant decisions including alterations or renovations. And you can’t sell it without the consent of the trustees as they own it.

Generally speaking, if your house is owned in a trust before you enter into a relationship or marry and your relationship fails, your partner can’t make a claim on it. It is a little less black and white if you reside in the property together during the relationship.

Securing your family’s future

Trusts are also useful tools to help with your estate planning, and you provide guidance to your trustees to keep your property in the family long after you’re gone.

The guidance may allow your children to have access to the assets of the trust (the trust fund) but protect them so their partners cannot make a claim for half of it should a relationship end.

The assets you put in can be held to secure income and assets for successive generations if you wish, perhaps for your grandchildren or great grandchildren.

You can choose to leave your entire estate or just some assets in the trust. You can name everyone you want to benefit from income or other forms of payment in the future and even set guidelines as to how it is distributed – either as a lump sum or regular payments, and also at a certain age. This is a way of guaranteeing that income.

Many people prefer to make only a will instead of establishing a trust, but the difference is a trust is more difficult to contest, while the provisions of the Family Protection Act 1980 make it possible to contest a will.

There are disadvantages to setting up a trust.

The first is the cost. You need a lawyer to set it up, and depending how complicated it is – you may have a lot of beneficiaries or a lot of assets to transfer – costs could rise into the thousands of dollars.

That’s why it’s important to shop around. Many companies and lawyers should be able to give you a ballpark figure to establish it.

Another is potential loss of privacy. Trustees are legally required to disclose certain information to beneficiaries, often including the personal finances of the trustee, and you may not want them to know that.

Changes in legislation passed in 2019 have put greater responsibility on to trustees, meaning there are now significantly more administration costs involved in maintaining a trust. As my financial adviser says, when making any move that involves money or assets, it’s always prudent to get advice, and in the case of establishing a family trust that advice is probably better coming from an independent expert.

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