Opinion: The role of trusts in farm succession

Lawyers can advise on setting up a family trust. Photo / 123RF

OPINION

With uncertain times ahead, it’s worth asking when a trust is worthwhile, writes solicitor Kerry Bowler.

Changes to law and policy in recent years have restricted the effectiveness of trusts for asset protection in some circumstances, while also increasing the ongoing costs of maintaining a trust.

There has been much discussion in the media about when the costs of keeping the trust outweigh the benefits.

With uncertain times ahead, it is worth asking: when is a trust worthwhile?

Trusts can still provide advantages and protections in a range of circumstances, including asset protection, tax planning, relationship breakdowns and inter-generational succession.

With many businesses facing uncertain times, a trust may help farmers, small business owners, property developers and other professionals who are exposed to risk to protect personal assets from creditors and WorkSafe prosecutions.

There can be tax and other financial advantages to establishing or keeping a trust.

You should seek professional financial advice on the tax consequences of establishing, keeping, or winding up a trust.

Trusts now provide only limited asset protection against relationship property claims.

Parents who have built up trust assets during a long and fruitful relationship should consider the protection the trust provides for their children’s future inheritance against the breakdown of an adult child’s relationship.

With people living longer and blended families being the norm, trusts have the advantage of providing for inter-generational succession and protecting assets from claims against a will or estate.

A trust can achieve fairness for farming families where only some children will carry on the farming business by providing more flexible asset planning options.

In all of these situations, timing is key - when the trust is established, when assets are transferred to the trust, and when benefits are paid out can all impact the benefits and effectiveness of the trust protection.

Simply establishing a trust and transferring assets to the trust is not necessarily enough to provide the protections and advantages.

How the trust is managed and how the assets are dealt with throughout the duration of the trust can also play a key role.

The continued involvement of professionals such as lawyers and financial advisers can help to ensure the trust continues to provide asset protection, financial advantages or the succession plan that was intended.

If you are unsure about whether a trust will benefit your family or protect your assets, we recommend that you speak with your lawyer and financial adviser.

Kerry Bowler is a solicitor at Edmonds Judd in Te Awamutu.