Introduction to family trusts

 Imagine if you want a friend to look after your young children if anything were to happen to you. In order to do so, you transfer the legal title of your assets to your friend.  Therefore, your friend is now the legal owner of all of the assets.  But what is stopping him from breaking his promise and doing what he wants with the assets that are now legally under his name?

The law of trust was developed historically to address this problem.  The friend is a trustee who is  holding the land on trust for the benefit of your children.  Although the friend has the legal title to the assets, he is under a legal obligation to use the assets to look after the beneficiaries.

A common misconception is that assets are transferred to a trust entity.  This is not entirely accurate, because in reality, trust assets are transferred under the names of the trustees.  This is why when you look at land title, the name of the trustee is listed as the owner of the property, and not the name of the trust. 

There are three main parties involved in the formation of a trust:

Trustee(s): This is the person (or persons) who now has the legal title to the trust assets.  Since the settlor is transferring assets to the trustees, it is important that the settlor chooses people who are reliable and trustworthy. 

Beneficiaries: These are the people for whom the trust benefits.  The beneficiaries can be named individuals or people belonging to a class of people that can be ascertained, such as “children” or “grandchildren”.

Appointer: This is the person with the real power to control the trust.  The appointer has the right to add or remove trustees and to add or remove beneficiaries.  In another words, the appointer is the person behind the scenes who has the authority to ultimately determine how the trust assets are managed and distributed.

If you have any questions about New Zealand trust law, speak to us at Capstone Law, and we will be happy to assist you.