Glenn Smith: Golden rules for what goes into the family trust

One of the most common questions from people considering a family trust is, "Should I put my company into my trust?"

Given that the purpose of a family trust is to reduce personal wealth, whilst securing assets for your own use and for future generations, there is a simple golden rule when considering what to put into a trust.

If an asset is likely to rise in value over time, and if it is something you may like to pass on to your children, it should be placed in your family trust.

Assets such as your family home, public shares, life insurance policies, family heirlooms and antique jewellery fall squarely within this category.

If an asset is likely to fall in value over time and if it is something that is likely to have a relatively short lifespan, it should be kept out of your family trust.

Into this category fall such items as household appliances, clothing, personal effects and vehicles (unless you own an original Ford Model T).

If you are self-employed, the shares you own in your business are likely to appreciate in value (after all, that should be the key goal of your business). For that reason alone, your company shares should be put into your family trust as soon as possible.

But there are other equally compelling reasons for transferring the ownership of your company into your family trust. For example, if your business fails, even if caused by factors beyond your control, you may gain additional personal protection from having the company owned by your family trust. This is particularly true if you have to declare bankruptcy.

But a word of caution: The New Zealand courts have the power to overturn certain recent transfers of assets into a trust if they have been done to avoid tax or other financial liability. Therefore the message is clear: the sooner you act, the sooner the trust will begin offering you protection.

Circumstances do vary, however, and you should always seek professional advice before undertaking any transaction involving your family trust, such as transferring your company shares into the trust. It is critical that the correct documentation is completed, along with the updating of Companies Office and IRD records.

* Glenn Smith is the HomebizBuzz trust and company formations expert.