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Trusts protect assets against claims and debts

Farah Khan – trusts-protect-assets-farah-khan-web

Assets held in Trusts are usually protected from creditors of the Trustees and their beneficiaries two years after the formation of the Trust.

In New Zealand, businessmen often borrow money against their family home to run their companies. The seek protection in the event of their inability to service the debt. They place their assets in a Trust as a protection against business loss or other unforeseen liabilities.

In most circumstances, a Trust protects these assets from personal liabilities.

Even if you are not in business, circumstances can you land you into financial mess. Imagine that you are driving a car in a drunken state and meet with an accident in which you hit someone’s Maserati worth $300,000.

Your insurance will not cover the cost since you were under the influence of alcohol, while the owner of the expensive car takes you to court, demanding money.

Most of us will not have such money. However, if you have equity in our home, you would be forced to sell your house pay the damages.

If your home has been held in a Trust for more than two years. it will be protected from creditors.

Reducing claims

If your assets are held in your personal name or a company, then they form part of your estate, as you know, regardless of whether you have a Will or not, your estate can be contested and the Courts may allow claims from people you did not intend to benefit from your assets. Transferring assets into a Trust is a gift in your life time and cannot be contested upon your death.

Relationship Property

If you give personal assets to your children during your life or in your Will, those assets may, in certain circumstances, become available to their partners under the Property (Relationships) Act 1976.

However, if your assets are owned by a Trust, or are given to your Trust on death, your children can continue to receive the benefit of those assets.

But the assets do not form a part of their personal property and hence cannot be subject to claims by your children’s partners, whether they are married or live in a relationship).

If assets are transferred into a Trust prior to entering a relationship, the assets in are less likely to be subject to a relationship property claim at the end of their relationship.

Family trusts may provide protection against various forms of wealth tax that may be introduced in the future, such as death duties or inheritance tax.

Family trust are not publicly registered and therefore can be kept confidential.

Even the Beneficiaries of the Trust do not need to know of its existence.

The disadvantage

The only disadvantage is costs. These will depend on the complexity of your Trust and the nature of the assets to be transferred. You will also need allow for ongoing costs if you wish to administer your Trust effectively.

There will be time and cost involved in maintaining the Trust’s annual accounting and administrative requirements.

As Suze Orman, a popular American financial adviser said, “There is no law saying that you have to die before your assets can be passed to loved ones. In fact, gifting earlier can be a lovely way to witness how your money helps your family thrive.”

Farah Khan is Partner & Notary Public Practice Manager at Khan & Associates Lawyers and Notary Public based in Papatoetoe, Auckland. She can be contacted on (09) 2789361. Facebook: Farahkhanlawyer.

 

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