Do I Need a Trust? - Knowledge Sharing Series
Do I Need a Trust?
Here at Trillium we are huge advocates of Trust’s. The main reason for this is their asset protection qualities. we believe that if you spend your working life accumulating wealth that you should put just as much effort into protecting that wealth.
In our eyes a Trust is essential if you:
Have a reasonable level of assets.
You have a business of other risks.
You have leveraged investments.
You are entering into a relationship where you have vastly differing wealth’s.
You wish to tuck away and protect an investment for your children.
As highlighted briefly in our “What is a Trust?” blog, a Trust in it’s simplest form allows you to manage risk!
Nobody expects or plans to end up in a position of financial hardship, but a Trust allows you to tuck away your assets as a nice fall back contingency.
What sorts of situations might a Trust benefit me in my situation you ask?
Lets look at a general example involving two business owners, Luke, and John:
Luke owns his own business, he leases the business premises on long lease terms. Luke also owns his own home and has personal investments that he has built up over the years.
John owns his own business through a company in the same field as Luke. John has a Trust that owns the majority of John’s company, as well as John’s family home, and personal investments.
What’s the difference here you might ask? lets see what happens when we introduce financial trauma.
COVID comes along, putting NZ into lockdown, and closing both Luke and John’s businesses. A few months later their businesses are allowed to reopen but demand has moved away from their business’s field causing sales to drop by 30% on previous levels, no longer covering the business’s costs.
Luke closes his shop doors permanently. Luke has a remaining lease obligation stretching 8 years into the future. Luke’s landlord chases Luke for the lease payments and Luke is forced to sell his house and investments to pay the lease terms. Luke is put into bankruptcy.
John also closes his doors permanently. John’s has a remaining lease obligation stretching 8 years into the future. John’s landlord chases John for the lease payments. John is bankrupted, however John’s family home and investments are in a Trust and he gets to keep those.
Now this is a fairly basic example and there can be plenty more complexity involved however, he main learning to come away with from the example is that you want to be like John. To be like John to need a Trust involved in your structure.
Too often we see people’s business risk fall away and they decide to close down their Trust and hold the assets personally in their own name.
A Trust can have a great role in the care of the infirm, whether elderly, younger, or afflicted. The term often used for this is a Living Will. The assets stay out of the sole ownership and control of the afflicted and they can have an armchair ride to the finish. The capable trustees look after the finances for the beneficiaries!
We hope that this has given you some insight into how a Trust might benefit you. If your still on the fence or would like to know if a Trust might be advantageous to your personal situation simply give us a call today!