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General, Settlor; settlors, Trusts

The new wave of trusts?

Work Safe New Zealand.New Zealanders are reported to have more trusts per head of capita than anywhere in the world.  Whether this is true or not cannot be verified as there is no register of New Zealand family trusts.

The secrecy that surrounds trusts is one aspect of why they have remained so popular.  While trust ownership can often (but not always) be inferred from land and share registers it is not permissible to confirm the existence of a trust.  Elements of secrecy or privacy are not the only motivator.  Historically the main drivers for trust formation have been (or have been presumed to be):

  • avoiding estate duty (no longer relevant since estate duty was abolished – of course it can never be said that a new estate duty will not be introduced)
  • asset and estate planning to improve prospects for a means tested benefit or subsidy such as long term residential care subsidies (a harder and harder proposition as MSD policy firms up)
  • income splitting to take advantage of beneficiaries (often children) on a lower tax rate (largely no longer available due to amendments to tax law)
  • avoiding the top marginal tax rate (no longer the case since the top marginal tax rate and trustee tax rate have become aligned)

Moving forward another motivation may well drive more people to settle trusts to own valuable assets – work place safety.  While this may seem an unusual driver – it takes little drilling down to see why this may well be the case.

On 4 April 2016, the Health and Safety at Work Act 2015 comes into force bringing new responsibilities for everyone in the workplace. This Act is part of a reform package aimed at reducing the number of serious work-related injuries and deaths in New Zealand by at least 25% by 2020.  Currently New Zealand averages 52 work place deaths a year.  On top of that hundreds of people are seriously injured and hundreds more die from work related disease.

Under the new Act everyone will have a part to play in work place safety.  However, some will pay a bigger role than others.  Businesses  in the form of a new legal concept called a Person Conducting a Business or Undertaking (PCBU) will be responsible.   So will the people who manage and run a PCBU (officers).

Compliance with the new legislation will be mandatory.  it is not possible to contract out.  And the big stick – the fines and penalties, which can be incurred by PCBUs and Officers cannot be insured against.  Officers can be subject to penalties of up to $600,000.  PCBUs can have even greater liability.

For some the strategy for now is protecting assets – and trusts are a way for assets to be removed from personal ownership and the reach of creditors – see for example “Scared school principals hide homes in trust to escape tough work safety regime”

It is important for anyone settling a trust to take a balanced approach and consider the advantages such as creditor protection as well as the disadvantages such as loss of control, dealing with beneficiary demands and the cost of managing and maintaining a trust.

And of course, if work place safety is the only motivator prevention remains better than cure.  For more about the new Health and Safety at Work Act see Work Safe New Zealand.

 

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