Have you ever wondered how to best protect your personal assets while running a business?
As business advisors, one of the most important conversations we have with clients is around safeguarding what matters most. Whether you’re just getting started or have been in business for years, it’s vital to take practical steps to protect both your personal wealth and your company’s future. One smart option to consider is setting up a family trust.
In this article, I’ll walk you through how a trust works, why it matters, and how it can help protect your assets from common business risks.
What is a Trust?
A trust is a legal structure where a person (called the settlor) transfers ownership of assets to another person or entity (the trustee) to hold and manage on behalf of others (the beneficiaries).
Assets in a trust can include cash, real estate, shares, or other investments. What makes a trust unique is that it separates legal ownership (held by the trustee) from beneficial ownership (enjoyed by the beneficiaries). This separation is what creates the protection.
Who’s Involved in a Trust?
There are three main roles in any trust:
- Settlor: The person who creates the trust and contributes the assets—often the business owner.
- Trustee: The person or company responsible for managing the assets according to the trust deed. Trustees have a legal duty to act in the best interests of the beneficiaries. You can appoint yourself, family members, or a company as trustees.
- Beneficiaries: The individuals or groups who benefit from the trust—usually your family or those you want to provide for.
What is a Trust Deed?
The trust deed is the legal document that establishes the trust and outlines its rules. It includes the following: sets out the roles of the settlor, trustees, and beneficiaries, and explains how the trust assets are to be managed and distributed. This document is critical in making sure the trust operates effectively and serves its intended purpose: protecting your personal assets from business-related risks.
How a Trust Protects Your Personal Assets
Running a business in New Zealand, especially as a sole trader or in a partnership, comes with exposure to legal and financial risks. Business downturns, creditor claims, and legal disputes can all pose a threat to your personal wealth.
By transferring personal assets (such as your family home) into a trust, those assets are no longer owned by you. Instead, they’re owned by the trustees. This creates a legal barrier between your personal wealth and the potential liabilities of your business.
Here’s why a trust is worth considering:
- Protect Your Personal Assets from Business Risk
If your business becomes insolvent, faces legal claims, or encounters unexpected financial challenges, a trust can help shield your personal assets from being seized. For many small business owners, this provides peace of mind—especially if you don’t have the protection of a limited liability company structure.
- Reduce Risk While Taking Business Opportunities
Being in business involves calculated risks. Having a trust gives you confidence to grow, knowing that your personal investments—such as your home or savings—are not exposed to your business’s day-to-day operations.
- Support Estate and Succession Planning
Trusts aren’t just for asset protection—they’re also a smart way to plan for the future. A well-structured trust can simplify the process of passing on assets to your children or other beneficiaries, reducing the likelihood of disputes and helping your family avoid delays during estate administration.
- Retain Control Without Direct Ownership
While a trust means you no longer legally own the assets, you may still maintain significant influence. This can be done, for example, either by appointing yourself as a trustee or by appointing someone you trust to oversee the trust. This balance between asset protection and control makes trusts appealing for business owners who want a say in how their wealth is managed.
- Potential Tax Planning Benefits
Additionally, in some cases, trusts may allow you to allocate income across beneficiaries in different tax brackets. This can offer tax efficiency for the wider family group. However, tax rules around trusts can be complex, and it’s important to get professional advice tailored to your situation.
Is a Trust Right for You?
Establishing a trust can be a powerful way to protect your personal assets, plan for your family’s future, and reduce exposure to business risk. But it’s not a one-size-fits-all solution.
At SME Financial, we take the time to understand your unique situation before recommending the best structure. Whether you’re running a solo consultancy, managing a growing team, or leading a well-established firm, we can help you explore whether a trust aligns with your long-term goals.
Let’s Talk
If you’d like to know more about using a trust for asset protection, estate planning, or tax efficiency, get in touch. Our team of experienced advisors in Auckland is here to help you make informed, confident decisions for your business and your family.
Together we can achieve more.
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