What is a trust?
Is an agreement under common law where a person (“settlor”) transfers assets to an independent party (“trustee”), who will than be authorized to manage said assets in benefit of the beneficiaries of the trust.
The settlor is the person who creates the trust and designates beneficiaries and determines specific rules or conditions that have to be met.
It is important to note that the assets transferred to the trustee do not become part of his or her estate (it is an estate that is autonomous and independent from the estate of the settlor, the trustee and the beneficiaries) therefore, assets are kept out of creditor’s reach. Said assets are exclusively transferred to be managed in benefit of the beneficiaries, according to the terms arranged in the agreement.
The New Zealand law admits the discretional creation of the Protector to control the actions of the trustee. Since trustees tend to have broad administration powers, it is very common for the settlor to designate a person of his or her trust to perform this duty.
Additionally, the trusts can be revocable or irrevocable. Many times, irrevocable trusts are created for tax purposes (by means of which the property of the assets are disposed and transferred in whole). However, the trust can also be revocable, allowing the settlor to recover the ownership of the assets and terminate the trust property.
When do trusts provide solutions?
It is a versatile and flexible instrument that can adapt to several situations such as: estate planning, assets protection, implementation of complex corporate structures in a globalized world; channel concrete investments; anticipate for sons and grandsons studies; escrow deposits of goods in commercial transactions and charity, among other.
What advantages does New Zealand offer over other jurisdictions?
The main advantage is from a tax perspective. Provided that the settlor is not a person resident in New Zealand and that the assets do not have taxable activity in New Zealand, the trust will be exempt from all tax. Likewise, the distributions made to beneficiaries, are also exempt in New Zealand.
New Zealand is an internationally respected and recognized jurisdiction that has political and economic stability, as well as a solid legal system.
Image: Max Lawton – Unsplash
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