Trusts are widely used in New Zealand, yet many people aren’t clear on how they actually work. Shenali Lewke-Bandara of Denham Bramwell Lawyers says trusts are often set up to protect assets or plan for the future, but if they aren’t managed properly, they may not provide the protection you expect.

Here are Shenali’s top tips for understanding trusts.

1. Know what a trust actually is

A trust is a legal structure for holding and managing assets. Once you transfer an asset into it, the trust, not you, technically owns it. Every trust involves three key roles: settlors, who set it up and put assets in; trustees, who manage it; and beneficiaries, who benefit from it. One person can hold all three roles, but that reduces the legal separation a trust is meant to provide.

2. Understand why people set them up

Trusts are commonly used to protect assets in relationships, manage inheritances, provide for vulnerable family members, or structure family businesses. They can also reduce exposure to creditors and help separate property across generations. But none of these protections are automatic. A trust only works if it’s created for the right reasons and run properly.

3. Watch out for misconceptions

Trusts aren’t magic shields. Assets in a trust aren’t automatically protected, and trustees can’t just do whatever they want. Courts can challenge poorly run trusts, especially if they’re treated like personal accounts. If you mix trust and personal finances, it undermines the whole purpose.

4. Keep records and reviews up to date

A trust isn’t something you set and forget. To remain effective, it needs regular trustee meetings, clear minutes, and separation from personal money. Good records are essential to show that the trust is being properly managed.

5. Get professional help to create and maintain it

Setting up a trust requires a lawyer to draft the trust deed and transfer assets. But maintenance is just as important as creation. Without proper oversight, the trust may not give you the protection or benefits you expect. A lawyer can guide you on whether a trust suits your situation and how to keep it running well.

Disclaimer: This article is based on a podcast featuring insights from experienced professionals and is intended for general information and inspiration only. While we aim to share valuable guidance, please seek personalised advice from qualified professionals before making decisions about your property, finances, or renovation plans.