Inheritance and estate planning are difficult things for many of us to talk about. Not only does it mean confronting the reality of our own passing, it also means we have to make sense of the bureaucratic and legal quagmire surrounding these issues. This complexity, however, is the very reason that proper planning is essential. A Will, while essential, is only the bare minimum. Funds and assets that aren’t properly protected might be lost to creditors, bankruptcy claims, divorce settlements, or taxation claims before they ever reach your loved ones.

One way to help prevent this from happening is to set up an inheritance trust. Unlike a simple Will, a trust can actively protect your family interests according to your wishes even after your death.

How Inheritance Trusts work

A Will allows you to leave your assets to specific people, trusts, or charitable entities. An inheritance trust is specifically meant to become the beneficiary of your Will in place of a loved one. One or more of these can be prepared ahead of time, dividing your assets in accordance with your particular wishes to benefit different individuals or serve different interests.

Upon your passing, the disposition of your assets will include the inheritance trust(s), to be managed by your appointed trustee. This is critical, as it can prevent creditors and other potential claimants from taking and liquidating some or all of these assets, and potentially depriving your loved ones.

Trusts offer advantages to your loved ones

The fundamental advantage of having a trust is that it can hold and manage assets for a specific purpose independently of the settlor or the beneficiary. This means that it can become more difficult for third-party claimants to reach the trust or its assets through either the settlor or the beneficiary, protecting them from creditors or other claimants.

Funds and assets that are traditionally willed to a beneficiary have a tendency to disappear. A young or financially illiterate beneficiary might simply make poor financial decisions that could see them lose their inheritance without gaining any real benefit. Alternatively, your loved one’s spouse, in-laws, or friends might pressure them into financial decisions they aren’t comfortable with, or they might be considered relationship property that can be lost in a future divorce settlement.

An inheritance trust can prevent this, unless the trust holds significant relationship property, such as a family home. Moreover, others, such as aunts, uncles, and grandparents can also gift assets to it later on. This allows the trust to provide a measure of financial security for the beneficiary independently of any outside pressures.

Establishing an inheritance trust

As the settlor, you can determine what your trust does and how your assets are handled through your Will and the trust deed. These should be carefully written with the help of a professional. A trust deed describes which assets are to be included in the trust, identifies the beneficiary, and appoints a trustee who will manage the trust. It should also include any special conditions for the trust, and a memorandum of wishes describing how the assets should be managed after your passing. Choosing a worthy trustee is often the most difficult part of this process.

Choosing a trustee

While trustees are legally obligated to act in good faith, it’s up to the settlor to choose a person or institution with both the competence and the integrity needed to get the job done right. In cases of inheritance, it’s often a good idea to distribute the responsibility among multiple co-trustees or to use an impartial third party institution like Trustees Executors. This allows decisions to be made impartially, and in the best interests of everyone involved.

If you’d like to learn more about how you can secure your family’s inheritance, we encourage you to talk to one of our estate planning specialists today.

Contact 0800 002 431

Email [email protected]

www.trustees.co.nz