A very common question asked by many clients is "do I need a trust?".

The answer to that question is very fact dependent and every case will be different.

However, what can generally be said is that the reasons for having a trust are not the same and not as numerous as they used to be.

You may have seen recent press articles where commentators have been suggesting there will be a large scale reduction in the number of trusts in New Zealand due to the introduction of new law relating to trusts.

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However, one reason that remains for trusts continuing to have value is the protection they provide relating to family assets following the passing of loved ones.

The Family Protection Act 1955 gives close family members the ability to sue a family member's estate for a breach of a moral duty to provide for them in their will.

This can, for example, be where an individual has not provided for one of their children in their will.

Andrew Thomas
Andrew Thomas

The law does not state that any testator must provide equally to their children, but it does acknowledge that there is a moral duty on will makers to provide at least something for each of their children.

Case law has established that it is not possible to contract out of the provisions of the Family Protection Act.

The principle is that a person cannot enter into any contract which, for example, includes a promise not to sue one's parents on the basis they have not been adequately provided for under their will.

Such contracts would be found to be void and unenforceable.

The inability to contract out of the Family Protection Act can prove problematic when completing farm or small to medium business successions.

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This is because it is often the parties' intention to document how succession is to occur including what non-succeeding children will receive by way of inheritance if they are not to receive the family business.

Treadwell Gordon
Treadwell Gordon

Such intention is commonly set out in a document called a deed of family arrangement, which can be very useful in setting out what each family member is to receive, and helps ease any concerns that there will be disputes over the estate after death.

This can also be useful for a child who is taking over the family farm and incurring significant debt, to know that their siblings will not sue their parents' estate because they have "received" the family farm.

However, if it is not possible to contract out of the Family Protection Act, for example by way of a promise to not make a claim after death of the parents, some people feel that deeds of family arrangement are not worth the cost and expense.

This is where a trust can come in to play as the Family Protection Act does not apply to trusts. A trust can enter into the deed of family arrangement and children can agree on the proposed succession plan with the trustees of the trust. If the parents hold little in the way of personal assets then there is no concern about the Family Protection Act.

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Therefore, it can be very useful for the family assets to be held in a trust to assist in stopping any future claim and achieving certainty for the parents and the siblings as they go through succession or transfer of wealth to the wider family.

Although trusts may be less numerous than they once were, they still hold value in certain circumstances and each case should be dealt on its own merits.

•Andrew Thomas is one of the law column writers from Treadwell Gordon.