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What Is A Trust?

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Trusts Explained

A Trust is a private legal relationship created where a person (the “settlor”) places ownership of assets under the control of another person (the “trustee”) for the benefit of someone else (the “beneficiaries”) or for a specified purpose.

Parties Involved In A Trust

A Trust requires the involvement of 3 parties:

  • The settlor;
  • The trustee; and
  • The beneficiaries.

 

 

 

The settlor transfers assets, ceasing to become their owner.

The trustee becomes the legal owner of the assets and holds them in a trust fund for the exclusive benefit of any beneficiary.

The beneficiaries are those who are entitled to the benefit of a trust arrangement.

A protector can also be appointed by the settlor to watch over the trustee for the benefit of the beneficiaries. However, the protector should not be a beneficiary, to avoid any potential conflict of interest. 

Types Of Trusts

Most international private Trusts created are either:

  • Discretionary Trusts; or
  • Life Interest Trusts

 

 

Trustees of a Discretionary Trust have ‘discretion’ with regards how to use the income and capital of the trust fund, on behalf of the beneficiaries.

A Life Interest Trust is where a specified beneficiary is entitled to income, or other benefit, from assets held in trust for their lifetime.

Advantages Of A Trust

Trusts are confidential, tax-efficient and highly flexible financial and succession planning instruments which can be used to provide for specified beneficiaries, during, and after, a settlor's lifetime.

A Trust may be set up for the following objectives:

  • Privacy;
  • Asset protection and security;
  • Tax planning;
  • Succession planning; or
  • Asset consolidation and management.

 

 

 

 

A huge advantage of Trusts is tax planning, and indeed if the Trust is located in an offshore centre, or in a favourable onshore jurisdiction, there may be considerable tax planning opportunities available.

However, the use of Trusts for advantageous tax planning purposes requires expert advice and planning given the complexities of trust law, and the tax treatment of Trusts from jurisdiction to jurisdiction. Properly understood, planned and created, Trusts are a powerful tool for the protection and enhancement of assets. 

New Zealand Trusts whitepaper

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