What is a Trust

The trust has to repay the Settlor for assets it has acquired; this is usually done through a ‘gifting programme’.


Benefits of Trusts:

  1. Protection against claims from creditors, should you later run into financial difficulties. Anything owned by a trust does not belong to you so cannot be taken away providing the trust owned the assets for two years.
  2. Rest home subsidy protection, excepting transfer to a trust over the past five years.
  3. Asset protection for children and grandchildren.
  4. Flexibility to cater for differing beneficiary needs.
  5. Ease of administration of deceased estate; trustees can not usually be challenged whereas a Will can be challenged.
  6. Distributions to beneficiaries can save tax.
  7. There can be some protection of assets in the event of a relationship split, though a property agreement is the best form of protection for personal relationships.

What should you put in a trust?

You transfer assets to a trust by selling them at their current value. The trustees record the purchase price as a debt owing to you. Any gain in value, say from real estate enriches the trust. You further enrich the trust by making gifts; the maximum gifts anyone is permitted to make in any twelve months period is $27,000. There are a few minor exceptions such as ordinary presents to the family. If you exceed the maximum, you are required to pay gift duty.

You can sell as many assets to the trust as you like. If your reason for having a trust is to protect assets, as it should be, then sell as many as you can and make yourself poor. The exceptions to this rule are:

  1. If it is tax disadvantageous.
  2. If it is going to be significantly more costly to account for the assets in the trust than it would be if you continued to hold them in your own name.


Income earned by a trust does not immediately belong to the beneficiaries. While a trust may, it does not have to distribute any income to beneficiaries. Trust tax rates currently are 33% however trust income distributed to beneficiaries is taxed at the beneficiaries’ personal tax rate. There is a limit of $1,000 for income distributions to minor beneficiaries under 16 years of age.

Important things to remember.

  • Always keep trust finances separate from all others.
  • A trust must have a separate bank account.
  • Trustees may allocate some or all of the income to beneficiaries but this must be done within 12 months of financial year end (extended from 6 to 12 months from 1 April 2009).
  • Minute all your decisions and then carry them out. Otherwise it may be difficult to prove whether a transaction was on behalf of the trust or a beneficiary.
  • ALL trustees must sign minutes if the trust deed requires this.
  • When distributing to beneficiaries ensure the minute contains the words ‘having considered the interests of all beneficiaries’. It is important to show their interests were all considered before the decision was made.
  • When lending money to your trust, record the loan as being interest free repayable on demand. Interest free loans, which do not have this qualification, can be deemed gifts, possibly subject to gift duty.
  • Keep beneficiaries informed. It is recommended you send them copies of the trust’s accounts.


DISCLAIMER: The information contained in this document is for information purposes only and should not be relied upon as a substitute for professional advice. For further information and advice please contact Whaley Harris Durney Chartered Accountants.