Is your Family Trust still working for you?
Having a family trust used to be considered the be all and end all for asset protection. For many asset holders, establishing a family trust and transferring their assets meant they lessened the risk of having their wealth consumed by rest home care fees and allowed them to avoid tax implications. These days, however, it’s not that straight forward.
Now that gift duty has been abolished in New Zealand, the maximum amount of debt a person or couple can gift to a family trust before it is seen as a deprivation of assets is $27,000 per year, or $6,000 per year in the 5 years preceding the application for the Residential Care Subsidy. This is half the amount it was prior to the abolishment on 1 October 2011. This often means people are unable to forgive much of the debt owed to them by their family trust before rest home care is needed. When applying for the Residential Care Subsidy, Work and Income will include any unforgiven debt owed to the applicant by the family trust when completing a financial means assessment. What some people don’t realise is, the threshold is set at a new level each year on 1 July and differs depending on your relationship status and the care requirements of any spouse. Now, there are a lot of New Zealanders who would fit within this threshold, allowing them to maintain their family home and cash assets without the ongoing administration costs of a family trust.
Additionally, family trusts were also often established as a tool in tax minimisation through trust income being disbursed to beneficiaries at a lower tax rate. This allowed the wage earner to enjoy the benefits of being paid a higher salary without having to pay the increased level of tax. Due to the overuse of family trusts in this manner, New Zealand has responded with the appropriate legislation. Therefore, the family trust entity no longer represents itself as the powerful tax minimisation tool it once did.
There are a number of new rules affecting family trusts and how they operate – the issues addressed in this article are just the tip of the iceberg. If you think your family trust is no longer needed or maybe isn’t working how you want it to, then contact us for a no obligation trust review. We’ll help you identify where your family trust is falling short and how we can help you achieve the optimal asset protection.