The main parties involved in a Trust are:

The Settlor(s)

In general terms, this is the person or persons setting up the Trust (e.g. if you and your spouse/partner want to set up a Family Trust, you both would generally be the Settlors.  If you alone are setting it up, then generally you alone would be the Settlor.

In the Trust that I will form for you, being the Settlor is significant as this gives you the right to appoint and remove the Trustees.

The Trustee(s)

A Family Trust normally has two or more trustees, or a single corporate trustee.    

It is the Trustees' job to administer the Trust in accordance with the Trust Deed.  The Trust Deed is a 20+ page document setting out the 'rules' of the Trust. A Settlor can choose to be a trustee of a Trust. In some circumstances, it is advisable also to have an independent trustee (i.e. someone who is not a beneficiary e.g. your accountant or a trusted friend).  When deciding on trustees, you should consider how the Trust is to be managed.  Will you do this yourself, or will a professional trustee be involved?  See FAQ - "Who should the trustee(s) be?"

The Beneficiaries

These are the people for whose benefit the Trust has been established.  There are generally two types of beneficiaries – Discretionary Beneficiaries and Final Beneficiaries:

• Discretionary Beneficiaries have a right to be considered by the Trustees to benefit from the Trust's assets.  They generally don't have an automatic right to receive any benefit.  Typically, the discretionary beneficiaries would include both you and your spouse/partner (if you have one), the children of your relationship, and those children's children (i.e. your  grandchildren).

• Final Beneficiaries have a legal right to the Trust's property (if any) on the date the Trust finishes. They are usually your children with provision for grandchildren if a child of yours dies leaving children of their own before the Trust finishes.

There is a range of options of deciding who the Trustees(s) of your Trust should be - each with their pros and cons. For the purpose of my explanation below, I am speaking to a couple (e.g. spouses/partners) considering forming a Family Trust:

1. Option 1 - (You and your spouse/partner personally be the Trustees with no third/independent trustee):  At one end of the spectrum, you and your spouse/partner are the Trustees personally with no independent trustee.  There is no general law requiring a Trust to have an independent trustee in order to be valid. Depending on the terms of your Trust Deed, you and your spouse/partner can be the sole trustees of your Trust.  However, there are reasons why you may choose not to be the only trustees.  The downside of this Option 1 is it provides the poorest form of protection of the Trust’s assets in the event of a claim.  Because Trust property is owned in the name of the Trustee(s) – not the Trust name - the wider public, including creditors, when looking at the Trust’s assets (e.g. the family home owned by the Trust) will see your and your spouse/partner's names on the title and could wrongly form the view that the Trust’s property is owned by you both personally and is therefore available to meet claims against you personally if they push hard enough.  The truth is, however, you both own the property in your capacity as Trustees of a Family Trust, not personally, but that is not obvious to the outside world.  The plus side of this Option 1 is its ease – you don’t need to form/maintain a corporate trustee, you don’t need to consult with or pay an independent trustee.  However, if your purpose in forming a Family Trust is asset protection from business risk, I don't recommend this option.  This is because a creditor bringing a claim against you personally, say under a personal guarantee you've given to a supplieror landlord, could try and argue that because there is no independent person involved in the Trust, the Trust is essentially a sham or not real, that the Trust assets are essentially still your personal assets and should be available to meet claims made against you personally. Whether this claim would succeed or not in court will essentially come down to how the Trust has been administered - not the absence of an independent trustee (as mentioned, you can still have a valid trust without an independent trustee). However, your Trust being structured in a way that gives creditors the correct perception of who owns the Trust's assets can go a long way in protecting those assets. This is why I don't recommend this form of trusteeship for persons wanting to protect assets from business risk.  This Option 1, however, may still be suitable for people setting up a Trust for other reasons.  
   
   
   
2. Option 2 - Have an independent person (e.g. your accountant) be the sole trustee: At the other end of the spectrum, you and your spouse/partner would not be involved as trustees – either personally or as directors and/or shareholders of a corporate trustee. Rather, you would have some one else who is independent of you and the Trust, someone who is not a beneficiary, be the trustee (e.g. your accountant, a trusted friend or two, or a professional trustee firm).  This would provide the strongest form of protection of the Trust’s assets in the event of a claim. However, one real downside of this option is the financial cost of having an independent trustee and the hassle factor of needing them to sign and make decisions when you want the Trust to do anything (e.g. buy/sell property, sign a document). If you opt for this option, essentially as a beneficiary you’d be putting through requests for the trustees to consider and they then would make decisions independent of you. This option of trustee, however, will definitely send the message to the wider public, including creditors, that the Trust assets are not yours personally. In fact, with this option it is could be difficult for others to even discover what assets are associated to a person. I’ve seen some Trusts with this option but not many.
   
   Three common options for a more of a middle ground are below:
   
   
3. Option 3 - You and your spouse/partner personally be the Trustees together with an independent trustee (e.g. your accountant or a trusted friend):  The downside of this option is the cost and delay in decisions making (similar to those mentioned in Option 2 above). Benefits include the independent trustee's name will show on the title to Trust property in addition to you and your spouse/partners which helps communicate to the wider public that the Trust’s assets are not yours personally.
   
   
4. Option 4 - Have a Corporate Trustee, that is a company that has the sole job of being the Trustee of your Trust: While there are a variety of sub-options here, it is typical to have you and your spouse/partner both as the directors and 50/50 shareholders of the corporate trustee.  Benefits include your and your spouse/partner's names won’t appear on any title to your Trust's assets. Rather, the trustee company's name will show on the title to the Trust’s properties (e.g. "XYZ Trustee Limited") sending a clear message to the wider public, including creditors, that the Trust's assets are not yours personally but are owned by a Trust.  With this option you don’t have the downside of costs and time delay in involving a third independent trustee.  
   
   
5. Option 5 - Have a Corporate Trustee together with a Protector:  In some ways this option is the best of both worlds - the freedom and ease of not having an independent trustee, together with mitigating the risk of a creditor arguing that you have retained full control of the Trust and its assets.  For more information, see my FAQ "What is a Protector and should I have one?". 

The choice of trustee and how you structure your trusteeship is largely a degree of personal choice and what you are prepared to put up with in terms of costs and having to consult with a third person.  The option that gives the strongest form of protection of the Trust’s assets is Option 2.  If you are not prepared to even put up with risk of someone arguing the Family Trust is not valid because there is no independent person, then Option 2 is best for you provided you're okay to put up with the downsides. 

However, remember - you don’t need an independent person to be involved in your trustee structure in order to have a valid Trust. Whether a Trust will do its job in protecting its assets from claims that come to your personally, as explained above, is more of question of whether or not the Trust has been properly administered. 

In my experience, most business owners wanting to protect assets from business risk opt for either Option 3, 4 or 5.  Personally I think Option 5 hits the sweat spot for many business owners between freedom of administering the Trust and the protection an independence presence provides.  

A "Protector" of a Trust is a person appointed by the settlor(s) of the Trust who is not a trustee but has the power to oversee and approve certain key decisions made by the trustees, such as distributing assets or making significant changes to the trust deed. 

If your business faces a creditor claim which you have personally guaranteed (e.g. obligations to a landlord under a lease or a supplier under a supply agreement), and the claim has enough zeros after it that your business can’t meet that claim, the creditor will likely pursue you personally for the amount claimed.  In doing so, the credit may try and argue that your Trust is essentially a sham on the basis that you have retained ultimate control over Trust and its assets, and therefore the Trust’s assets are essentially yours and should therefore be made available to meet claims against you personally.  Whether or not a court would agree with that argument will depend on the overall facts.

You can, however, do one of two things to mitigate the risk of that argument even being raised by your creditors:

• Have an independent trustee; OR
• Have a protector,

neither of whom, to be effective, should be a beneficiary of the Trust or related to you by blood or marriage.  Both of these options show, to one degree or another, that you are not retaining full control over the Trust and its assets by divesting some key aspects of control over the Trust and its assets to an independent third party. 

The settlor(s) will retain the power to appoint and remove the protector.

As to whether having an independent trustee is better than having a protector, that is a personal preference.  There are downsides of having an independent trustee (as explained in my FAQ "Who should the Trustee(s) be?").  If you’re not prepared to put up with those downsides but still want a degree of independence in your Trust, you may find having a Protector a happy medium.

Trustees are the legal owners of Trust's property.  They can do the same sorts of things with the Trust's property that you could do as the personal owner, such as sell property, buy property, lease property, and use Trust's property as security for bank lending.  Trustees can generally hold all types of assets and investments as long as they operate in accordance with the Trust Deed.

Assets can be transferred into the Trust at any time. They can be gifted into the Trust or sold into the Trust. The Settlor will usually sell his or her home, for example, into the Trust shortly following forming the Trust.  The Trustees may acquire further assets as time goes on.

When gift duty was repealed in 2011 it became possible for Settlors to gift the value of their entire home into their Trust without incurring gift duty/tax. 

Prior to 2011, the transfer of the family home, for example, would be structured as follows:

• The Settlors would sign an Agreement for Sale and Purchase in which they sold their house to the Trust;
• The sale price would be the current market value;
• Because the Trust usually didn't have the money to pay the Settlors for the house, the Trust would sign a Deed of Acknowledgement of Debt in which the Trustees acknowledged that they owed an amount equal to the purchase price to the Settlors.
• The Settlors would typically reduce the debt owing by gradual annual instalments of $27,000. This was the amount a person could gift without incurring gift duty prior to October 2011.

Even though gift duty was repealed in October 2011, it has remained common for Settlors to still structure the transfer of their home to their Trust as a sale and purchase, rather than gifting the home outright to the Trust.  The reasons for doing this is outside the scope of this write up, but suffice to say that you should get legal, accounting and tax advice on how best to structure getting assets into your Trust. 

Any increase in the value of the asset sold to the Trust belongs to the Trust and not to the Settlors personally.

Similarly, any income from the Trust's assets is Trust income and not the income of the Settlor.

Yes, you will need either a lawyer or a conveyancer to help you transfer your home to your Trust.  

As a general rule and from an asset protection point of view, if you’re in business you generally don’t want to own any significant assets personally as doing so can expose them to business risk.

So any other assets of significance should be owned by your Trust or someone other than you.

You may want to seeking advice from your accountant as to whether or not you should transfer all or some of the shares in your business/company.  Your accountant may advise you to transfer all of your shares to your Trust, or may advise you to retain a small shareholding to give your accountant the flexibility to allocate a shareholder salary to you at the end of the financial year.

Assets owned by your trading company that you use in trade should generally stay in your company and will not need to be transferred to your Trust.

If you own your business premises, it is common for your premises to be owned by a Trust and leased to your trading company. 

Before you transfer any assets to your Trust, I recommend you obtain legal, accounting and tax advice from suitably qualified advisers to make sure there won't be any adverse legal, accounting or tax surprises.

Generally, the Trustees decide which payments from income or capital are to be made from the Trust and which beneficiaries shall receive them.

Further, if the Trustees owe a debt, for example, under a Deed of Acknowledgement of Debt as a result of Settlors selling their home to the Trust, it is common for the terms of the Deed to say the debt is repayable by the Trustees upon the Settlors 'making demand' for repayment. So that is another way Settlors can get money out of a Trust - by demanding repayment of money owed (if that's what the documents allow).  Payments of this kind from the Trust to the Settlor are usually free from income tax.

The Trusts Act 2019 allows Trusts to have a maximum duration of 125 years. Your Trust will be able to last for 125 years, or may be wound up earlier if the Trustees decide it has served its purpose. For example, after you have passed away it would be common for the Trust's assets to be distributed to your children (or their own Trusts) and for your Trust to be wound up before the expiry of the 125 year period.   

Trusts are subject to various legal requirements and there are several provisions in law that allow property in a trust to be clawed back in certain circumstances. These can defeat the purpose for which the trust was set up in the first place.

A court may set aside transfers of assets that were made with the intention of defeating the rights of creditors or the rights of spouses/partners under the Property (Relationships) Act 1976.

If a couple’s relationship property has been transferred into trust and that transfer has the effect of defeating the rights of one of the partners under the Property (Relationships) Act, the court may order the other partner to compensate the partner whose rights are defeated.

Also, transferring assets into trust may affect your eligibility for the residential care subsidy.

These provisions are more likely to apply if you gift your assets into trust rather than selling them and then gradually forgiving the debt owed to you. You should check with your lawyer before gifting property into trust.

You should assess whether a trust is a suitable vehicle to meet your objectives. You should weigh up the advantages and disadvantages of your various options, including the on-going management compliance costs of each. Your lawyer will be able to help you determine what is required to meet your needs.

Administering your Trust properly and keeping it compliant with applicable laws is essential if it is going to protect the assets that it owns.  You can do this by:

• having regular meetings (for a simple Trust annually is generally sufficient);
• recording the decisions made by the trustees;
• ensuring that Trust property and your personal property are not mingled together; and
• ensuring that the trustees review their duties regularly.  

If a business claim was made against you personally, and the claimant/creditor argued the Trust was a sham or somehow the Trust assets were yours personally, then being able to evidence that the Trust has in fact been run correctly will go a long way in defending that claim and maintaining that the Trust assets are not yours but are owned and protected by the Trust.

Generally, income received by the Trustees from Trust assets will generally either be:

• taxed as trustee income at the Trustee tax rate of 39%, after which that income becomes part of the Trust capital; or
• distributed to one or more beneficiary and taxed at the beneficiary's marginal tax rate - between 10.5% - 39% depending on the beneficiary's personal income.  Note, however, certain distributed of beneficiary income to minor beneficiaries (under 16 years) is taxed at the trustee rate of 39%.

The IRD has specific reporting requirements for Trusts which have come into effect in 2022. Trustees and Settlors should seek advice from their accountant as to whether or not the reporting requirements apply to them.

Usually 2-3 business days.

Here's the process:

1. I would normally discuss via phone whether a Trust is right for you.
2. Once you've decided you want to proceed, I will let you know what information I need from you to form your Trust (e.g. the Trust's name, who the trustee(s) and beneficiaries will be etc.). 
3. I’ll send the Settlors and Trustees text links to their cell phones for my ID and address verification process required for AML purposes.
4. Once the ID and address verification process is complete, I’ll prepare the Trust documents – generally allow 2-3 working days (or 4-5 working days if you opted for a corporate trustees allow- see FAQ "Who should the trustee(s) be?").
5. I’ll then email you your Trust documents for signing.

Once signed, you’ll have a fully formed Family Trust on modern terms ready to receive the transfer of your assets.