{"id":637,"date":"2020-12-22T10:06:49","date_gmt":"2020-12-22T00:06:49","guid":{"rendered":"http:\/\/nz.legalvision.com.au\/?p=637"},"modified":"2021-03-18T00:06:39","modified_gmt":"2021-03-17T11:06:39","slug":"family-and-discretionary-trusts","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/","title":{"rendered":"Family vs Discretionary Trusts in NZ"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">Trusts are a popular form of managing your property or assets in New Zealand, especially for families wanting to collect income for their benefit. But, they can be confusing at first glance. You can structure your trust as a family or <a href=\"https:\/\/legalvision.co.nz\/business-structures\/discretionary-trust\" target=\"_blank\" rel=\"noreferrer noopener\">discretionary trust<\/a><\/span>. <span style=\"font-weight: 400\">This article will explain:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">what are family and discretionary trusts;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">their key features and benefits of managing your assets through a trust; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the differences between the two trust types.<\/span><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What is a Discretionary Trust?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">In simple terms, a trust is what happens when someone (a settlor) gives or sells property to another person (the trustee) to hold or manage for the benefit of someone else (a beneficiary). Some examples of such property are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">cash or life insurance policies;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">real estate; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">securities.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">When your trust is discretionary, this means that the people managing the trust (the trustees) can choose:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">who can benefit from the trust; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how much money or property they can receive.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">This is different from a fixed trust, where you can choose who the beneficiaries are and what payments they can get when you create the trust. Under a fixed trust, these parameters do not change in the future.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What is a Family and Discretionary Trust?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A family trust is a trust that can be fixed or discretionary, but most tend to be discretionary as this provides trustees more flexibility and control. The key feature of a family trust is that it is usually created by someone to benefit their family. They put their property into a trust, and family members gain income or other forms of payment from that property in the trust. A member of the family usually manages the trust as well. Some reasons why you might want to put your family assets into a trust include:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-weight: 400\">as a parent, you may want to leave behind a form of income for your children after your death, and may not want your children to manage it themselves; or<\/span><\/li><li><span style=\"font-weight: 400\">if your family wants to <a href=\"https:\/\/legalvision.co.nz\/business-structures\/start-a-business-in-new-zealand\" target=\"_blank\" rel=\"noreferrer noopener\">start a business<\/a>, putting your property into a trust can protect it from any risky ventures.<\/span><\/li><\/ul>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 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Usually, it would include clauses that cover:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the purposes of the trust, and how it runs;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">who the trustees are, and the powers they have;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">who the beneficiaries are;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">what you need for making decisions about the trust;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how you split the assets (payments) between the beneficiaries; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how beneficiaries receive these payments.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">If you have any questions about your trust, the trust deed is the first place to go to for answers.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">The Settlor<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">This is the person who creates the trust, and gives or sells the property to the trust. The settlor can also make themselves a trustee, or a beneficiary. The settlor transfers ownership of that property to the trust.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">The Trustee<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">This can be multiple people and are the recorded owners of the trust. The trustee has a duty to manage the trust sensibly. This means:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">making responsible business decisions;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">keeping accurate and up to date records of the trust; and<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">making sure that the beneficiaries can receive the full benefits that they are entitled to.<\/span><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">The Beneficiary<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">This is the person or people that benefit from the income or capital generated by the trust.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Advantages of a Trust<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">If you wish to put your family assets into a trust, there can be many advantages to doing so. If you do not own the property in the trust, but still benefit from it, this is useful in a variety of situations:<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Protection Against Relationship Property Claims<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">If you split from your partner, and you put your property in a trust before you entered into the relationship, this property cannot be claimed in a divorce settlement. Because you do not legally own the trust assets, this excludes it from the claim.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Income Taxes<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Income earned from property owned by a trust is taxed at 33%, which is lower than when an individual owns property. If this trust income is for beneficiaries who earn little or no income, then the income tax is based on the tax bracket the beneficiary falls into. They may be a lower tax rate as well.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Trust Difficulties<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">From managing your property to <a href=\"https:\/\/legalvision.co.nz\/business-structures\/run-business-through-trust\" target=\"_blank\" rel=\"noreferrer noopener\">running your business<\/a>, trusts can be useful for a variety of reasons.<\/span> However, <span style=\"font-weight: 400\">they are not simple to run or manage. Trust law in New Zealand is changing to make sure that trusts are functioning legally and efficiently. This means that trustees are more scrutinised, and have set duties to manage the trust in a proper manner.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If <a href=\"https:\/\/www.ird.govt.nz\/roles\/trusts-and-estates\">Inland Revenue<\/a> suspects that your family or discretionary trusts <\/span>are<span style=\"font-weight: 400\"> not being maintained properly, then it can investigate and declare the trust a \u201csham\u201d. This means that it is invalid.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">I<\/span>f you want to manage your assets through a family or discretionary trusts, it is essential to understand their differences. <span style=\"font-weight: 400\">A discretionary trust means that trustees control who can benefit from the trust, and how much payment they get. A family trust can be a kind of discretionary trust, that usually benefits your family and is managed by a family member. Trusts can be useful for various reasons, but are not to be entered into lightly. If a trust is not well-maintained, this leaves you open to legal action. If you want more information or help with your family o<\/span>r<span style=\"font-weight: 400\"> discretionary trusts, contact <a href=\"https:\/\/legalvision.co.nz\/business-lawyers-lp-new-zealand\">LegalVision\u2019s business lawyers<\/a> on 0800 005 570, or fill out the form on this page.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">FAQs<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1606880228344\"><strong class=\"schema-faq-question\"><strong><strong><strong><strong><strong><strong>What is a discretionary trust?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">A trust is someone (a settlor) gives or sells property to another person (the trustee) to hold or manage for the benefit of someone else (a beneficiary). A discretionary trust is a form of this, where the trustees can decide who the beneficiaries are and what payments they can receive from any income or capital created by the trust. They can also change this.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1606880258379\"><strong class=\"schema-faq-question\"><strong><strong><strong><strong><strong><strong><strong>Is a discretionary trust the same as a family trust?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">A family trust is a kind of discretionary trust that you can create to hold your family\u2019s assets. This means that you can set up a trust to generate income for the benefit of your family.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1606880271477\"><strong class=\"schema-faq-question\"><strong><strong><strong><strong><strong><strong>What is the point of a family trust?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">You can cater your family trust to suit your situation. But, some families use it to generate income for your children or other family members. Or, you can put your assets in a trust to protect them if you decide to start a family business.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1606989773267\"><strong class=\"schema-faq-question\"><strong><strong><strong><strong><strong>What are the disadvantages of a family trust?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">If you do not manage or maintain your family trust properly, then this can leave you open to legal ramifications. This means you must keep up to date records of the trust, and actively take part in business decisions regarding the trust.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"5d238358bb\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/637\" \/>            <input value=\"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Family vs Discretionary Trusts in NZ\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Trusts are a popular form of managing your property or assets in New Zealand, especially for families wanting to collect income for their benefit. But, they can be confusing at first glance. You can structure your trust as a family or discretionary trust. This article will explain: what are family and discretionary trusts; their key<a href=\"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/\">Continue reading <span class=\"sr-only\">&#8220;Family vs Discretionary Trusts in NZ&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13236,"featured_media":130,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[4],"tags":[25,44,47,48],"class_list":["post-637","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-small-business","tag-trust","tag-family-trust","tag-discretionary-trust"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - 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She is experienced at writing for online publications and wants to use these writing skills to make legal information transparent and accessible for anyone. Emma has a double degree in Law and Politics, with a minor in Psychology.","url":"https:\/\/legalvision.co.nz\/author\/emmalindblom\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/#faq-question-1606880228344","name":"What is a discretionary trust?","acceptedAnswer":{"@type":"Answer","text":"A trust is someone (a settlor) gives or sells property to another person (the trustee) to hold or manage for the benefit of someone else (a beneficiary). A discretionary trust is a form of this, where the trustees can decide who the beneficiaries are and what payments they can receive from any income or capital created by the trust. They can also change this.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/#faq-question-1606880258379","name":"Is a discretionary trust the same as a family trust?","acceptedAnswer":{"@type":"Answer","text":"A family trust is a kind of discretionary trust that you can create to hold your family\u2019s assets. This means that you can set up a trust to generate income for the benefit of your family.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/#faq-question-1606880271477","name":"What is the point of a family trust?","acceptedAnswer":{"@type":"Answer","text":"You can cater your family trust to suit your situation. But, some families use it to generate income for your children or other family members. Or, you can put your assets in a trust to protect them if you decide to start a family business.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-structures\/family-and-discretionary-trusts\/#faq-question-1606989773267","name":"What are the disadvantages of a family trust?","acceptedAnswer":{"@type":"Answer","text":"If you do not manage or maintain your family trust properly, then this can leave you open to legal ramifications. This means you must keep up to date records of the trust, and actively take part in business decisions regarding the trust.\u00a0","inLanguage":"en-NZ"},"inLanguage":"en-NZ"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/637","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/users\/13236"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/comments?post=637"}],"version-history":[{"count":9,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/637\/revisions"}],"predecessor-version":[{"id":203652,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/637\/revisions\/203652"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media\/130"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media?parent=637"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/categories?post=637"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/tags?post=637"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}