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Trusts - Forever?
Over the
last decade our governments have systematically reduced major forms of
"wealth axes" such as:-
- Death
Duties.
- National
Superannuation Surcharges.
We appear
to have no current form of capital gains tax, which effects the casual
investor/landlord (other than capital gains taxes for traders and developers.)
Whilst the
obvious lack of current "wealth taxes" seems attractive for future planning,
this noticeable absence begs us to ask what is coming and how do we plan
for the future of Capital Gains taxes, Asset Testing and Income Testing
regimes?
Family Trusts
as an asset holding vehicle have historically provide adequate protection
from Death Duties, Income and Asset Testing regimes. There is no reason
to assume that they will not continue to provide protection into the future.
The reason
is that recently the IRD commenced the wholesale auditing of family and
trading trusts, not from a tax mitigation perspective, but from a compliance
perspective. What this tells us is, people have been sloppy with the management
of trusts i.e. the back dating of sale and purchase agreements and gifting
statements.
A family
trust should only be used for the maintenance, education and advancement
of beneficiaries who are people. Over recent times trustees have extended
this theory of maintenance, education and advancement to beneficiaries
who are not people, like family companies. This practice is bad and the
IRD has come down on this, as was recently noted in "The Press". The understanding
of a Trust is that there must be some degree of natural love and affection
in order for a trust to exist. It is quite difficult to love an inanimate
entity such as a company, hence the IRD clear undertaking to straighten
up the management of Trusts.
Therefore
if a trust is managed and documented correctly there is no reason to assume
that the government will challenge the legality of the Trusts existence.
Hence endangering the prudent reasons for the Trusts establishment. The
majority of families can benefit from the establishment of a Family Trust.
In the past people have believed that Family Trusts are suitable for only
wealthy people, this is simply not true, as Trusts can provide benefits
in all family and commercial situations.
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