How Does A Family Trust Work?

How Does A Family Trust Work?
Setting up a family trust has long been a reliable way to help protect assets. It is so common in New Zealand that we are believed to have one of the highest numbers of trusts per capital in the world, with approximately one trust for every 10-15 people.  But what is a family trust exactly, and how does it all work? Read on for an introduction to family trusts and how they might benefit you. 

What is a family trust?

A family trust is when owners of assets transfer those assets to a group of people for the benefit of a third party.  That means there are three groups involved in any family trust; the original owner of the assets, the settlor/s; those who take over care of the assets, the trustees; and those who benefit from the assets, the beneficiaries.  For example, a grandmother (the settlor) could move her family home and a sum of money into a family trust. This trust is then operated by the trustees, which could be herself and her own children. Then, the grandchildren could be the beneficiaries, who could live in the home have the cash go toward their education.  Almost anyone can be a trustee in a family trust. It can be the person who put the assets into the trust, friends or family members, or even an independent professional trustee. So long as you have complete faith in the trustees to act in good faith on behalf of the beneficiaries, they are likely a good choice.  Additionally, you can also be a beneficiary of your own trust. You could put your home into a family trust, no longer technically legally own it yourself, but continue to live in it as a beneficiary of the trust.  Finally, a trust deed will outline the purpose of the trust and who can appoint or remove trustees. The trustees must act according to the trust deed.  It’s also important to be able to appoint new trustees or remove them, as family trusts can last for many years (with a maximum of 80 years), so these roles must be able to be passed along. 

The benefits of a family trust 

There are several benefits to family trusts, and several popular reasons why people use them.  For one, it can be a good way to set aside money for a specific purpose. For example, you could put cash into a trust for a child or grandchild’s education or future home. Family trusts also offer the benefit of protecting assets against personal issues. In this case, if you own a business and it fails, creditors may be able to access certain assets to regain their lost investments. If your family home is in a trust, it can be protected from these claims.  Another reason people set up family trusts is as part of their will. For example, if you want your home to go to one of your children when you pass away, a trust can ensure that happens, and keeps the home safe from other people trying to claim it (such as an ex-spouse).  

Get help with a family trust 

It can be confusing getting your head around family trusts and how you could benefit from them. If you need help setting up a trust, Hayman Lawyers can explain the benefits for your situation, ensure the documentation is correct, and support you in setting up the trust deed exactly how you want it.  If you have any questions at all, don’t hesitate to contact us to learn more.  
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