Farah Khan –
Individuals and businesses are realising the importance of Trusts on the face of increasing risks to businesses and individuals.
Trusts are the most popular way of safeguarding personal assets and reducing the risk of huge financial losses in the event of financial hazards faced by companies.
While large and medium sized enterprises and high net-worth individuals have in place appropriate safeguards and risk management techniques, small, owner-operated companies and ordinary New Zealanders are largely unaware of the importance of establishing Trusts.
It is therefore essential to make people understand that Trusts can be established and managed with relative ease but by qualified and experienced people.
The Trinity of Trust
A Trust is a way of giving property or assets to somebody to look after for the benefit of somebody else. Three parties are required in the process. They are the Settlor, the Trustee and the Beneficiary.
The person who sets up a Trust and transfers property or properties into the Trust is called the Settlor.
The person who looks after the property on behalf of the Beneficiaries is called the Trustee and the person for whose benefit the Trust has been set up is called a Beneficiary.
Usually, there would be more than one Trustee. That would assure the Settlor that all decisions made by them (Trustees) are in the best interest of the Beneficiaries.
There will always be a Primary Beneficiary for whom the Trust is set up, but most Trusts will have a large pool of Discretionary Beneficiaries who would come into the picture if the Primary Beneficiaries are no longer alive.
The same person can be a Settlor, Trustee and Beneficiary, but there should be other Trustees and Beneficiaries as well. Otherwise, it may be deemed a ‘Sham Trust’ and become legally void.
A Trust is not a separate legal entity. Hence, if a person transfers a family home into a Trust, the title of the property will be registered in the name of the Trustees personally and not in the name of the Trust.
A Trust is an equitable entity whose primary purpose is to look after the assets for the Beneficiaries.
A Trust has a lifespan of 80 years, unless it is dissolved earlier by an agreement of the Trustees. This means a person can ensure that his or her personal assets are dealt with properly and that there is no uncertainty after their death.
Setting up a Trust
New Zealand Law requires that a Trust which holds hould be in writing, with all relevant details of the property or asset, mentioning the person or persons establishing the Trust, the names of Trustees and Beneficiaries.
The cost of establishing a Trust varies and as in the case of everything else, quality always has its price.
My advice is that anyone keen on establishing a Trust must make proper inquiries, compare costs and then decide on a firm. However, be sure that you are comparing apples with apples.
During my eleven years of legal practice, I have come across many Trusts that would not stand the test of validity in a court of law.
It is therefore imperative that a Trust is set up correctly by someone who has a thorough knowledge and experience.
This is a very specialised field that should be handled only by experts.
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.