While it is true that an International Trust creates a greater level of privacy and confidentiality in handling your personal affairs and assets, it should never be a means to evade taxes. And it should never be used as a tool for fraudulent purposes.

Importantly, asset protection planning generally integrates different planning tools into one planning structure creating a synergy beyond what you could otherwise accomplish with independent planning techniques. Therefore, an International Trust has many different purposes, one of which is asset protection.

What is a family trust?

A trust exists when one person (a “trustee”) holds and owns property for the benefit of another person (a “beneficiary”). A family trust is a trust set up to benefit members of your family.

The purpose of the family trust is for you to progressively transfer your assets to the trust, so that legally you own no assets yourself, but for you, through the trust, to still have some control over, and get the benefit of, these assets.

The following are some of the advantages of setting up a family trust:

Creditor Protection – Assets held in trust are usually protected from creditors of the beneficiaries, or the trustees personally. A usual situation in New Zealand is where the parents have personally liabilities (often related to their business interests), and wish to protect their family home from such liabilities in the event they are unable to meet them. In most circumstances a trust protects those assets from personal liabilities.

Protection Against Relationship Property Claims – 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 part of their personal property, and therefore cannot be subject to claims by your children’s partners.

Further, if assets are transferred into a family trust prior to entering into a relationship, the assets in the trust are less likely to be subject to a relationship property claim at the end of the relationship.

Protecting Property from/for Beneficiaries – You may be reluctant to simply give your assets to your children during your life or on death if you have concerns about their ability to manage their financial affairs. If you give your assets to a family trust, then the trust can provide a vulnerable child with income and/or capital to meet their cash requirements as they arise. This can protect the long-term value of your family’s assets.

Protecting Assets for Future Generations from Potential Tax Law Changes– 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.

Reducing or Preventing Claims Against your Estate – The Courts can effectively rewrite your Will under the Family Protection Act 1955 if it considers that members of your family have been disadvantaged by its provisions. However, the Court cannot rewrite your trust for Family Protection Act purposes.

General Flexibility to Deal with Law Changes – Modern trust deeds normally allow limited rights of variations to deal with changes in the law.

Confidentiality – Family trusts are not publicly registered and therefore can be kept confidential.