Exploring the types of trusts - Unleashing the power to protect your assets and legacy

Exploring the types of trusts

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The types of Trusts

    • Family trust (discretionary trust).

    • Parallel trusts

    • Defined interest trust

    • Multi-generational trust

    • Business trust

    • Funeral trust

    • Inheritance trust (or testamentary trust)

    • Injury and compensation trusts

    • Life insurance trust

    • Pet trust

    • Special disability trust

Main trust types

  • Family trusts are normal discretionary family trusts set up by a couple or a single person. The Settlor(s) will normally be the Principal or main beneficiary(ies), with children or other loved ones normally ranking second, and their descendants normally ranking third. Secondary Beneficiaries are those who “inherit” only if all other beneficiaries die.

  • Parallel trusts are two trusts, set up by couples who are entering a new relationship, set up a trust each to keep their pre-relationship assets separate. This is to ensure that their trust retains those assets if they separate and to ensure that their own children from prior relationships will ultimately “inherit” their Trust. The parallel trust may contain provisions for the other partner (such as the right to live in the Trust’s home after you die on defined terms, or the right to be maintained on defined terms after your death). The provisions for your partner normally cease if there is a permanent separation, or if the partner enters a new relationship after you die.

  • Defined interest trusts are normally established by a single person entering a new relationship, or a couple entering a new relationship. These trusts provide for the single person or couple setting up the Trust to rank number one during their lifetime (with the right to live in the family home(s), and for their welfare to be looked after). After their death, the other beneficiaries will have defined interests. For example, the trust may contain provisions for the other partner (such as the right to live in the Trust’s home after you die on defined terms, and/or the right to be maintained on defined terms after your death). The provisions for your partner normally cease if there is a permanent separation, or if the partner enters a new relationship after you die. The trust will then normally provide the percentages in which the other beneficiaries, or trusts established for their benefit, are to “inherit” the Trust funds after the death of those who set up the Trust.

  • Multi-generational trusts are set up by those who want to ensure that their wealth is preserved in the Trust for the benefit of their loved ones, and future generations. Mult-generational trusts are ideal for those who have one child. They have in the past been used only by wealthier families who have demonstrated the wealth preservation that such trusts can enable. Multi-generational- trusts need to be tailor-made for your circumstances.

The other trust types

  • Business trusts are normally established for investments where it is too risky for the main trust to own the investment.

    An example would be ownership of shares in a private company, where the shareholders are required to give guarantees to landlords, banks or other creditors.

    Normally the beneficiaries of the business trust are confined to the principal (main) beneficiaries and the main trust(s).

  • Funeral trusts are formed to hold sufficient funds to pay for funeral costs.

  • Parents, grandparents and others can set up an inheritance trust or trusts for the benefit of their children, grandchildren or others, which can be formed now with them as the Settlor(s) (often with only the initial settlement amount of $10.00). They often receive funds after your death either from a bequest made in your will (a testamentary trust) or a capital distribution from another trust. The Trust can also be established by way of detailed provisions in a will. Inheritance trusts are now vitally important as your loved ones cannot now safely set up a trust when they are in a relationship, as they run the danger of their powers under the trust deed being held to be relationship property: see Trusts and relationship property claims.

  • An example is ACC trusts where ACC insist on payments for injured children or mentally incapacitated individuals being paid into a trust for their long-term benefit.

  • Life insurance trusts are normally established for private company life insurance to ensure that the proceeds are applied to purchase the shares of a deceased shareholder. It is normal for such trusts to have an independent trustee.

  • Pet trusts are set up with sufficient funds to look after your pets after you die. They often receive funds after your death either from a bequest made in your will or a capital distribution from another trust.

  • If you have a child, grandchild or other loved one with a disability leaving their “inheritance” in a Trust can enable them to benefit from government assistance, while being able to enjoy other benefits that would not be possible if they owned the assets. They often receive funds after your death either from a bequest made in your will or a capital distribution from another trust.

Disclaimer: This article should not be relied upon for legal advice. Always seek professional legal advice before making any decisions regarding your business.