In New Zealand law, a trust is a legal relationship where a settlor transfers assets to trustees, who are legally obligated to manage and administer the assets for the benefit of beneficiaries. It's a way to separate ownership and control of assets from those who ultimately benefit from them.
In Aotearoa New Zealand the law recognises the following kinds of trusts:
Express trusts
An express trust is a type of trust created intentionally by the settlor (the person establishing the trust) through clear and explicit terms, typically laid out in a formal written document known as a trust deed. This trust is established to manage and distribute assets according to the specific wishes of the settlor.
Discretionary trusts
A discretionary trust allows trustees to have broad control over how trust assets are distributed to beneficiaries. This means the trustees decide who benefits, how much they receive, and when they receive it. Beneficiaries in a discretionary trust don't have a fixed claim to the trust assets; their entitlement is at the trustees' discretion.
Fixed Trusts
These trusts specify exactly who the beneficiaries are and the exact portion of the trust assets they are entitled to. The trustee has no discretion in distributing the assets; they must follow the terms outlined in the trust deed.
Unit Trusts
Similar to shares in a company, beneficiaries in a unit trust have units that represent their share in the trust's assets. These units can be transferred or traded, making them a common way to hold investments.
Bare Trusts
In a bare trust, the trustee holds the assets on behalf of the beneficiary, but they have no active role in managing the trust assets. The beneficiary has the right to demand the assets at any time.
Interest in Possession Trusts
These trusts grant beneficiaries a right to receive the trust income during their lifetime. The beneficiaries have a life interest in the trust, but they do not have ownership of the underlying assets.
Discretionary Trusts
In New Zealand law, a discretionary trust allows trustees to decide who the beneficiaries are, and how much income or capital they receive from the trust. This means beneficiaries don't have a guaranteed entitlement to any specific assets until the trustees decide to distribute them. Family trusts and charitable trusts are often, but not always, set up as discretionary trusts.
Types of trusts that are commonly discretionary include:
Family Trusts
These are a common type of discretionary trust where the beneficiaries are typically family members. They are used to protect assets, distribute income, and provide for future generations.
Charitable Trusts
These trusts are established for charitable purposes, and the trustees have the discretion to decide which charitable organisations benefit from the trust.
Other Trusts
Any trust that is not a ‘bare trust’ (where the trustee holds the assets for a specific beneficiary) is considered a discretionary trust.
Trustee Discretion
Trustees have the power to choose which beneficiaries benefit, how much they receive, and when they receive it.
No Fixed Beneficiaries
Unlike fixed (or non-discretionary) trusts, beneficiaries of a discretionary trust do not have a legal right to the trust assets until the trustee decides to distribute them.
Flexibility
This discretion allows for adapting to changing family circumstances or needs.
Potential for Tax Advantages
Discretionary trusts can offer tax advantages, but it's crucial to seek professional advice to ensure compliance with tax laws
