[Carey]

We've been advised to set one up as they can be used to reduce income tax in relation to income earning assets. But after reading several other's views,not sure if a good idea or a fast way for accountants to make more money! Anyone got one and is it worth it?

[Tesall]

We've been advised to set one up as they can be used to reduce income tax in relation to income earning assets. But after reading several other's views,not sure if a good idea or a fast way for accountants to make more money! Anyone got one and is it worth it?

Caveat - This is just my opinion and I hold no responsibility for any actions you atke based on this post.

But in my opinion it is a YES. It is a very important step to take to protect your assets, in particular if you need to be hospitalised as an older person. The govt uses your money to pay the bills, and even liquidating assets before they start paying. This does not include standard hospital visits, but specalised old person hospitals and rest homes. I have seen first hand indiduals lose hundreds of thousands of dollars as they spend 10-15 years in care.

This is not a money making scheme for accountants, and thew sooner you do it, the better off you are as the gifting levels per year are quite low, so it can take a long time to gift your assets to the trust. DO it... in fact do it yesterday, if you care about your children and passing on what you have worked for to them.

[92Immigrant]

It is a very important step to take to protect your assets, in particular if you need to be hospitalised as an older person.

Nice:nice1 Let the taxpayer pay even though you are capable of footing your own bills.

Dave.

[JandM]

I agree with Tesall.

[James 1077]

Nice:nice1 Let the taxpayer pay even though you are capable of footing your own bills.

Dave.

I'm sorry but one of the reasons that you pay taxes throughout your lifetime is as insurance for old age (ie state pays for pension and old age related costs). This was, throughout the person's lifetime, a given - so it shouldn't be the case that the government suddenly decides that it doesn't want to pay and forces you to do so out of your post-tax savings and investments (it possibly could do if it refunded the "old age care" portion of your lifetime's taxes). By forcing you to sell the assets and pay for your own care you are effectively taxing that person at many times their current annual income.

Family trusts are there to protect the assets that you have managed to build up over your lifetime out of post-tax income and protect them from governments who squandered the tax that you paid them in good faith.

And finally the old person, as a previous taxpayer, has already paid for that care out of the taxes that they paid throughout their life. If it wasn't for said squandering the cost wouldn't be falling on current taxpayers. If the government was a private insurance company then there would be outrage at its refusal to pay out on the insurance policy that the person had effectively bought with their taxes.

[kejktfc]

I agree with Tesall.


So do I. :nice1


kejktfc

[Tesall]

Nice:nice1 Let the taxpayer pay even though you are capable of footing your own bills.

Dave.

Intresting point of view. But it ignores the injuctice of the current system. You will never have a perfect equal system, but currently the govt encourages people not to save for thier old age as they will just take it all. Wasters who spend all thier life gambling, smoking, partying and drinking thier life away are winners, and those that save and want to pass on to the children they have... are penalised.

There are a plethora of reasons why some people can afford to pay and why some cant. If you feel so strongly about this, I hope you refuse all govt help and indeed when you are old enough and might need hospital care I hope you insist on not only using up your assets but making your kids pay any shortfall... it is only fair after all....they might be able to afford it.

[kejktfc]

Intresting point of view. But it ignores the injuctice of the current system. You will never have a perfect equal system, but currently the govt encourages people not to save for thier old age as they will just take it all. Wasters who spend all thier life gambling, smoking, partying and drinking thier life away are winners, and those that save and want to pass on to the children they have... are penalised.

There are a plethora of reasons why some people can afford to pay and why some cant. If you feel so strongly about this, I hope you refuse all govt help and indeed when you are old enough and might need hospital care I hope you insist on not only using up your assets but making your kids pay any shortfall... it is only fair after all....they might be able to afford it.



And that is why you got the thumbs up from me, my thought exactly.


kejktfc

[Super_BQ]

Nice Let the taxpayer pay even though you are capable of footing your own bills.


Dave, I wish there were more people like you living in NZ. Have grown up in Canada, I was raised to believe not to depend on the gov't for any assistance unless you can't do otherwise. It was just not cool to collect welfare instead of working say minimum wage. I think all this has to do with being patriotic. Those social nets are there to serve a purpose, not there to spoon feed the majority. Unfortunately i've never seen this kind of pride while living in NZ for the past decade. Instead, kiwis really look to the gov't for help or dare I say "HandOuts".


I'm sorry but one of the reasons that you pay taxes throughout your lifetime is as insurance for old age (ie state pays for pension and old age related costs). This was, throughout the person's lifetime, a given - so it shouldn't be the case that the government suddenly decides that it doesn't want to pay and forces you to do so out of your post-tax savings and investments (it possibly could do if it refunded the "old age care" portion of your lifetime's taxes).

James, you got it all wrong. The key distinction in paying taxes in developed nations is very simple, pay taxes = freedom. Nations that don't have a strong taxation system with corruption inhibit high levels of inequality where freedom is to the very few (elite rich at the top). What you failed to mention is NZ use to have "Death Duty" (DEATH TAX). When this source of tax revenue was abolished, what was suppose to go in place of that??? That's why they had to introduce another complex scheme - gift duty limits and asset testings for the elderly.

"DO PEOPLE REALISE WHAT THESE SAFETY NETS WERE INTRODUCED FOR???" Those who are truly unfortnate should have these tax funded social programs. If everyone started lining up for the hand outs then the system wouldn't work. I wonder if my cousins that grew up in NZ felt happy by taking the "Student Allowance" while going to uni when in fact their parents were filthly rich?


We've been advised to set one up as they can be used to reduce income tax in relation to income earning assets.

Carey, let me advise you very well (though i'm not a lawyer or an accountant). The primary reason for Familiy Trusts in NZ is so they can grab the gov't "Disability Allowance" or "Residential Subsidy Care". It has nothing to do with "OH, we've paid taxes and in return, we expect the gov't to babysit us" or "I'm paying too much taxes so I need to find a way to reduce it". The thresholds and limits are descibed here:

http://www.nmdhb.govt.nz/filesGallery/New%20Website/04When%20I%20Need%20Care/WorkIncomeMarlborough.pdf

Now follow carefully, claiming and gov't subsidy requires you to be asset tested - your total combined assets not exceeding $180,000 - However, we all know that a house today costs a lot more than that. So you often have situations where eldery couples are forced to sell their homes and move into a small townhouse or apartment just so they can stay under that limit and continue collecting the gov't handouts. So instead of having the house being sold under their feet, the NZ lawyers have devised a way to move the asset into a trust which ultimately means, YOU DON'T OWN IT ANYMORE, the trust will own it. How good of a deal is that.. get to live and in a house at the same time, collect the $ from the gov't. Best part of it all is a person may not of paid any taxes that funds the scheme (such as a new landed resident of NZ).

We must consider the lawyers and accountants' point of view. While the country saves a lot of $ from litigation and court costs in sueing like in the US, they must also find another way to make a living, as so.. we have trusts. (ACC has pretty much removed any right for citizens to sue in accidents) At the most simplest, a family trust will cost you about $500/year + inflation for the 90 year limit. What they don't tell you is that the majority of family trusts never ultimate see the full 90 year term - but rather they get dissolved. It would be hard to think that a trust can be maintained for 90 years when the most likely scenario is the 'beneficiaries' will disolve the trust (sell up the assets) at some time AFTER the trustees have died. I like to say "Dead people don't speak..."

Other possible hitches? Well you must be very clear that a Family Trust must what it is, a family trust. If you move your principal resident house into the trust, you must make sure that the house maintains to be a personal dwelling. Otherwise the trust will pay capital gains tax at time of sale of the house. That means you can't be writing off house expenses say later on you decide to start a home based business. You will lose the tax free capital gain in that case - 33% tax! But of course, no one knows in 10 or 20 years time you decided you want the house to be a home base business ? Or more likely, a rental income property?

I know of 1 scenario where a trust can not protect the assets and that is in the case of a divorce! No longer can individuals protect their house by putting it in a trust just so their newly spouse or common law wife can't touch it... That law was changed under the Family Matrimonial Act few years ago.

BQ

[Super_BQ]

Intresting point of view. But it ignores the injuctice of the current system. You will never have a perfect equal system, but currently the govt encourages people not to save for thier old age as they will just take it all. Wasters who spend all thier life gambling, smoking, partying and drinking thier life away are winners, and those that save and want to pass on to the children they have... are penalised.


Also what good does the trust do to the next generation when they know they don't have to work anymore? Mom and pop leave them a big fat trust, as soon as they die, dissolve it, take the cash and retire in Australia. Sure in many cultures they insist on leaving a huge pile of $ to their children after they die. But i'm saying a country that is brought up under that culture will greatly underperform. Money doesn't often stay for more than 3 generations (1 makes it the $, next generations spends it, next generation ends up poor).

PLEASE read what i'm trying to get here. We are dealing with people that HAVE LOTS OF $ and want to organise it in a way so they can take more from the gov't. This is not the case where people who have worked hard and are forced to sell what ever they have just because of some costly medical bills. The current medical care already covers that (Unless you go private and want preferential treatment). It's not like they're charging you $ each time Nurse Maude visits to clean the diapers. You've already paid for that...

[victoria24]

whatever,, the law exists and was voted democratically so use it if you wish to and if you disagree then don't.

[Tesall]

I would respond to BQ's post, but it would take to long as we disagree on to much. However I will say that the OP should get proper accounting advice and DISREGARD EVERYTHING he says about the tax side of it. He is wrong about Capital gains tax in a residence that is not the family home and in a trust. NZ has no capital gains tax, only if you trade property as a business.

http://www.familytrusts.co.nz/family-trusts/expats-tax-family-trusts-important-information-for-expats-returning-to-new-zealand-2/




Carey, let me advise you very well

mmmmm

[Super_BQ]

NZ has no capital gains tax, only if you trade property as a business.


So you're saying apart from individuals, an incorporated company that owns a factory workshop doesn't have to pay any tax on the capital growth upon sale of the asset? If that is the case then i've learned something new.

As i've said in previous posts, don't take my advice and seek a lawyer or accountant that does know what they're talkign about. You'd be surprised they're hard to find in NZ.

Maybe I should be more specific - this example i'm speaking experience from a close relative. Some years ago there was a loop hole in IRD that allowed land owners to transfer their principal resident home into a company. When I say company, it is a limited proprietorship that functions well... pretty much like a TRUST. The person loses posession of the house. So continuing on, what many did was they wanted to claim the GST and use their home as a home based business. On a house or property, 12.5% on say $500K asset is quite a bit of GST credit. They then would spent that gov't credit as they pleased.. maybe a renovation or improvement project in the house, supplies, etc. Of course it wasn't long that IRD had closed that hole up. But... was IRD stupid in allowing it to happen? No because they knew right then that as soon as the house changed hands, they would end up collecting the GST + any capital gains tax. But these individuals didn't really care because they wanted the $ for "Now" and would never see the day it becomes a problem as the tax liability would be the responsibility of the next generation (who takes over the company or in the case of a trust - the beneficiaries). Is that selfish thinking or not?

Now I know most of you all are saying that i'm trying to talk like I know what i'm talking about. But what i'm trying to describe is simple, any tax benefit the gov't gives to you now will mean later on, they will expect something in return. It doesn't take a rocket scientist to see that.

Remember the OP is asking about Family Trusts which means, a trust that doesn't operate as business and derives income. So I don't think the accountant was speaking of tax savings but rather, aiming for the gov't hand-outs for senior care. If there was any considerable savings, then obviously the person must have annual incomes in the 39%+ tax bracket. Of course a person making that kind of $ would hardly qualify as being unfortunate. But what about the tax savings in years when the person is not making much $ - in the 19% bracket?

Keep in mind that the Family Trust comes with a gifting program. That is in order for the house to be fully in the trust's possession, a loan must be setup. The trust's books shows a liability to the home owner and every year, the maximum allowable gift portion $27000 (or $54,000 per couple) is forgiven. But if you do the math, on a $540,000 home, it would take 10 years to fully gift all the house into the trust. But that's not really the overall goal, the issue is that upon death, the debt is forgiven. BUT THE REAL CAUSE HERE is that once you start a gifting program, it means you can't gift ANYTHING ELSE. Say you have a relative that needs $20K in any year for a major operation? Well, you would have to pay gift duty. Right from the horse's mouth

http://www.ird.govt.nz/resources/1/c/1c3534804bbe58ddbfb8ffbc87554a30/ir194.pdf

Speaking of gifting, I remember when IRD went after Jane Cameron (the famous founder of Katmandu retailer in NZ). She wanted to give a generous million $ to some charity in NZ but couldn't do so because of the gift duty problem. So she moved to Australia and made the gifting. But IRD considered that move as a sham and ended up going after the charitable organisation for the gift duty. How greedy is that?

On the other hand, I do believe where a trust can serve a much better purpose than asset protection. That is in the case of charity or cultural preservation. The goals of these organisations are pretty much similiar to the goals of what a trust would achieve - both having long time period that often span more than 1 generation and means that, the likelihood of dissolving the trust early is rare.

Is anyone else willing to post a counter-example of what i've described here?

BQ

[Tesall]

No, you dont pay capital gains on property in a family trust wether it is a primary residence or not.
This just reinforces why people should get proper advice.


Keep in mind that the Family Trust comes with a gifting program.

No such thing in NZ, each year is voluntary and on a case by case basis as decided by the individuals.

Are you sure you are not confusing rules with family trusts from another OEC country with ones from NZ?

[victoria24]

might be worth contaccting forum member garth as he specialises in this kinda stuff and it seems everyone agrees on seeking advice. his website is http://www.nzsecurities.com/