Expertise, Trust, Wills, Estates and Enduring Powers of Attorney

Trust Overview

Purpose of Family Trusts

The following comments relate generally to Discretionary Family Trusts. They are intended to be by way of introductory comment only. Any person considering setting up a Trust should seek specific specialist legal advice.

A properly established Family Trust can often be used to good effect to achieve a number of purposes including:

  • protecting the long term interests of yourself, your spouse and your children
  • removing assets from the scope of family protection or testamentary promise actions
  • protecting your assets against claims by future creditors
  • protecting your assets against matrimonial property claims including the interests of your children against claims by their partner or spouse

Separate Entity

A Trust is a separate entity for tax purposes and is established by a Trust Deed. Usually in the Trust Deed the settlor appoints trustees, usually a minimum of two, often three, to hold the Trust Fund (usually started with a minimum of $10.00) on behalf of beneficiaries. Most beneficiaries of Family Trusts are discretionary beneficiaries with the trustees exercising their discretion in favour of particular beneficiaries from time to time.

Traditionally in family situations, “Cross Trusts” were used where one spouse settled a Trust in favour of the other spouse, with the children as subsequent beneficiaries, and similarly the other spouse settled a Trust in favour of the other spouse and the children. Since the abolition of death duties in December 1992 it has become quite common for the settlor to also be a trustee of and a beneficiary of the Trust.

As a consequence it is now common to have one Trust covering the interests of both spouses and the children. Both spouses can be the trustees, although it is always desirable that there is at least one independent trustee as well.


The settlor is usually the person or persons who will be transferring assets to the Trust. In the case of a couple who intend transferring jointly owned assets to a Trust both should be settlors as the settlor usually retains the right to appoint and remove trustees.

Some opinion has suggested that for tax purposes the settlor should be some unrelated individual but we do not consider this to have any advantage as the Inland Revenue Department will deem all individuals who transfer assets to a Trust to have the same status as settlors.


Sometimes the trustees often include the settlor or settlors and possibly family members. We strongly recommend that an independent trustee should also be appointed, perhaps a lawyer or accountant. Without an independent trustee there is a much greater risk of the Trust being defeated in a challenge by a creditor, the Inland Revenue or Work and Income. When choosing an independent trustee the settlor(s) should consider carefully the ramifications of the need to remove the independent trustee in the future because appointing a friend may also mean that upon removal not only a trustee is lost but also a friend.

The trustees control the assets of a Trust and usually determine which beneficiaries benefit from the Trust. The trustees often also have the power to add discretionary beneficiaries to the Trust, usually only with the consent of the settlor.  The trustees also sometimes have power to remove discretionary beneficiaries from the Trust again sometimes only with consent from the settlor.


The beneficiaries can be whomever you wish and may include yourself, your spouse, your children, your grandchildren and such other people or organisations as you choose. As a result of changes to the accrual rules under the Income Tax Act, beneficiaries should usually be natural persons for whom the settlor(s) have “natural love and affection”, or be tax exempt organisations, particularly charities. Otherwise an income tax liability may arise for the trustees on distribution to a beneficiary outside that definition. Most Family Trusts to be effective are discretionary with the trustees determining who receives income and capital.

With a Discretionary Trust an individual may be named as a beneficiary or come within a class of beneficiaries but unless the trustees exercise their discretion in that individual’s favour the individual will not have any right or claim to any of the assets of the Trust.

Letter of Wishes

A Letter of Wishes is usually completed by the settlor to indicate to the trustees how the settlor wishes the Trust to be administered. The Letter cannot be binding on the trustees or it will destroy the advantages of the discretionary nature of the Trust.

Wills and Trusts

When you establish a Family Trust it will usually have a significant impact on the terms of your Will.  Often the executors of your Will will hold the power to appoint trustees of the Trust on your death.  It is therefore very important to review your Will when establishing a Family Trust.


A Trust is usually settled with capacity to run for up to the current maximum term of 80 years permitted under the Perpetuities Act. The term of the Trust can be shortened should the trustees so wish but if the life of the Trust is less than seven years, tax implications may arise where tax benefits have been gained through the use of the Trust.

There are numerous aspects of a Trust which you may wish to discuss with us. We look forward to the opportunity of doing so when convenient for you. For specialist assistance and advice concerning Estate planning, asset protection and Trusts contact Tony Fortune or Katherine McCarthy.