Lawyers sell trusts for the same reason McDonald's sells fries. They both sell well.

According to estimates in a recent Law Commission review, New Zealand has 400,000 trusts. One trust for every 10 people, compared with one for every 34 Australians and every 148 Canadians. An entire industry is built around selling, setting up and maintaining trusts. It is a sham.

There are some legitimate reasons for setting up a trust but not many. Virtually no benefit is derived from their use by honest citizens and little protection is enjoyed by dishonest ones.

Differences in tax rates between trusts and individuals created an incentive to shift income towards trusts, but this advantage ended last year when company, tax and trust rates were aligned and was of no benefit for salary earners.

The main reason Kiwis set up a trust is to protect their assets. From what I am not sure, but the standard trust scam sold by lawyers goes like this: set up a trust, sell the house to the trust and then gift the debt to the trust over a number of years. You must only gift $27,000 a year to avoid gift duty, but if you go bankrupt your house will be safe from your creditors.

Total waste of time.

Some 430,000 people filed gifting details with the IRD in the past decade, but fewer than 1300 went bankrupt. If each one paid their lawyer $2500 for a trust, a billion dollars was paid and virtually all of the sad few who fell into bankruptcy would have had little or no assets to hide by the time it was all over.

The Ministry of Economic Development calculated less than $1 million a year is recovered from trusts associated with bankrupts, yet $70 million annually is spent by taxpayers to comply with their gifting programmes.

Then there is Mr Lightbody, a company director who signed a personal guarantee in favour of one of his firm's suppliers. He got legal advice and spent 10 years gifting his house to a family trust before his firm failed. The creditor challenged this gifting and won. Lightbody lost his house.

The scrapping of gift duty later this year will make the use of trusts more affordable but they will still be mostly pointless.

Careful use of a trust can allow a failed business person to hide their assets, but people who are prudent rarely fail in business and the flash-Harry property and finance charlatans who do fail will not have their trust affairs in order.

If you are engaged in risky business and have substantial assets to protect, a trust may be of limited use.

For everyone else a trust is a status symbol. We buy one because our lawyers tell us we need one, our neighbours have one and no one has ever said they are useless.

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