Trusts Case Studies

Thursday 11 April 2013, 10:56AM

By Andersen Accountants Limited


You ned to know how a trust can help you to build up wealth and to protect your assets.

We have some case studies for you to consider. They are based on actual cases, however, all identifying details have been changed:



Case Study 1

John and Mary were a business couple in their 60s who had worked hard all their lives to afford a nice family home and investments. Their only child, Ethan, was a concern to them. Aged 35, he had been in and out of rehab for drug and mental health issues. He had had a number of de facto relationships. Ethan was unable to hold a job for long and led a transient lifestyle. The one bright note was that Ethan had a son, Jacob, aged 3, from a previous relationship. Jacob’s mother had had issues and, for a time, Jacob had been taken out of her care, however, she had managed to turn her life around and was now doing a good job as a mother.

As good parents, John and Mary wanted to provide for their son but they were concerned that any money given to him would be wasted.

If John and Mary left money to their son under their wills, it is likely that there would be nothing to stop him spending the money as quickly as he wanted on drugs and unsuitable girlfriends. It wouldn’t take much for those girlfriends to have a claim to the inherited money.

If John and Mary left their money by will to an inheritance trust, or something similar, as a way to protect the money from Ethan, Ethan would be able to take a Family Protection Act claim to seek to overturn the will and have the money given to him outright.

John and Mary decided to set up a trust during their lifetimes. They transferred the home and their investments into the trust. Through careful wording of the trust deed they were able to ensure that Ethan’s reasonable needs would be provided for, but that he would have no ability to waste money or to use it to buy drugs. His girlfriends would have no claim on the money either. Because nothing was left via John and Mary’s wills there was nothing for a Family Protection Act claim to be made against. John and Mary were able to securely provide for Jacob - and more fully for Ethan if his situation improved.


Case study 2:

Jane was professional woman in her late 20s. She had managed to save enough money to buy her first home. She was not in a relationship. Jane had to decide whether she would own the home in her own name or put it into a trust right from the start.


For a reasonable cost Jane set up a trust and her home was bought by the trust. Jane loaned the deposit to the trust and then forgave the debt. The net result was that all equity connected to the home was owned by the trust and not Jane.

When Jane later entered a de facto relationship, and then this ended after 3 years, the trust structure meant that the home was protected from claim by the ex partner. Jane had not needed to suffer the expense and stress of entering into a section 21 relationship property contracting out agreement.

Although sometimes claims can be made against trust assets by ex partners, if the trust is set up right, and at the right time, this risk is likely to be small. For added security a section 21 agreement could be entered into, however, our experience is that trusts are often the best answer.


Case study 3:

Raoul and Maria’s family had lived in their country for generations. The political environment was becoming more unstable and repression was increasing. Raoul and Maria worried about the government’s threats to nationalise assets, which would rob them of all that they had worked so hard to build up.


Raoul and Maria decided that they would need to migrate to another country. In the meantime, they set up a New Zealand foreign trust. They transferred their investments to the trust.

The trustee of this trust was a New Zealand resident company which held the investments for the benefit of Raoul and Maria. Those investments were now out of the reach of Raoul and Maria’s home country. They were not taxed under New Zealand law as the investments were held in bank accounts outside New Zealand (but owned by the New Zealand trust). Not only was Raoul and Maria’s nest egg safe, it had no liability to pay tax anywhere, allowing wealth to accumulate much faster than would otherwise be the case.

Kristina Andersen
Andersen Accountants Limited
Telephone: 09 3695198