“If it becomes clear that a trust is no longer needed or desirable, the trust can be wound up. For instance when administration costs are too high in relation to the recognised benefits. Also, if the purpose of setting up a trust in the first place was to protect assets from creditor claims, and the apparent risk no longer exists, it makes sense to wind it up,” says Paula Lines from The Law Shop.
“In a legal sense there are different ways to initiate the windup, but most often it will be done by the trustees deciding to bring forward the vesting date. Legal advice will be required as to how to distribute the assets, especially when trustees are also beneficiaries as it may represent a conflict of interest,” she explains.
Whether the trust is wound up early or has come to the end after 80 years, there are certain formalities required to record the end of a trust. Although there are limited legal formalities, there are practical matters that will need attention, to do with banking and the IRD.
“Whatever the reason for maintaining a trust or winding it up, it’s important to keep asset protection arrangements under review and to update them when significant changes happen in your life such as marriage, having children, or getting divorced. This will ensure that your arrangements stay fit for their purpose,” Paula says.
Winding up a trust is not a difficult process, but you may encounter some hurdles along the way. The team at The Law Shop can assist you and provide you with professional and friendly advice. If you are thinking about setting up or winding up a trust, call The Law Shop on 07-572 5272 (Tauranga) or 07 349 2924 (Rotorua), or contact us to get the ball rolling.