Trust Glossary

Appointer: The person who is given power to appoint and remove trustees and/or beneficiaries. Usually the settlor will have this power initially but may hand it on to someone else (if the trust deed provides for this).

Alter ego trust: A trust which is a ‘puppet of the settlor’. This is sometimes alleged when the trust deed has been signed and assets have been transferred to the new trust but the settlor has, in practical terms, ignored the trust and continued to treat the trust assets as the settlor’s own personal assets. The New Zealand courts have ruled that this is simply a form of sham trust.

Advisory trustee: Usually appointed in the trust deed to provide advice to the trustees, often on specified matters. An advisory trustee is not a legal trustee, but the trustees may rely on this advice.

Beneficiary: A person, company, another trust or other entity that is entitled to receive benefits from a trust.

Court: In New Zealand the courts which may deal with trust matters, in ascending order, are the District Court, High Court, Court of Appeal and the Supreme Court.

Deed of Delegation: A type of Power of Attorney for trustees; see Power of Attorney.

Discretionary beneficiary: A discretionary beneficiary may receive benefits from the trust but only if the trustees decide to provide benefits to the beneficiary. A discretionary beneficiary may also be a final beneficiary.

Distribution: Payment or transfer of an asset from a trust to a beneficiary.

Enduring Power of Attorney (EPA): Under an EPA another person is appointed to act on your behalf. This power can apply to your personal property and/or your personal care and welfare. A property EPA can either be effective immediately it is signed or might only become effective if you lose mental competence. It’s your decision when the EPA will become effective.

Family Court: Deals mainly with separation, divorce, care of children and relationship property. Sometimes, however, the Family Court becomes involved in trust issues.

Final beneficiary: A beneficiary who is entitled to share in the remaining trust assets when the trust comes to an end, usually after 80 years.

Forgiveness of debt: A debt is forgiven when it is acknowledged that all or part of a debt owing to you doesn’t need to be repaid. This is a gift that must be recorded in a deed. Gift: A gift is made when an asset is transferred to another person or organisation and nothing is received in return. Gifts can be made to a trust either by directly transferring assets or by forgiving all or part of a debt the trust owes to you. If you apply for a rest home subsidy from the government, there are strict limits on the amounts of gifts made previously.

Gift duty: A form of tax abolished in 2011. The tax was usually avoided by a notional sale to a trust at market value, leaving the sale price owing and then reducing that debt by the maximum allowed ($27,000 per 12 months). This was known as a gifting programme.

Gifting programme: A system of annual gifting in reduction of debt traditionally used to avoid gift duty as above. Now used mainly where there are possible rest home issues.

High Court: The main court which has authority in respect of trusts. Independent trustee: A trustee who is not a beneficiary.

Letter of Wishes: A written summary of goals and objectives for a family trust. It can also be known as a ‘Note for Guidance for Trustees’ or a ‘Memorandum of Wishes’.

Power of Attorney: A document which states who may sign documents or make decisions on your behalf; a simple power of attorney is cancelled if you are no longer mentally competent but an Enduring Power of Attorney (EPA) remains in force even if you become mentally incapacitated.

Primary discretionary beneficiary: Beneficiary given priority ahead of another beneficiary. Since the law normally expects all beneficiaries to be treated in an even-handed manner, it’s usually wise for the trust deed to make it clear who are to be the main beneficiaries (eg: the settlors during their lifetimes and then their children).

Protector: A person whose approval is required to specified trustee decisions. A protector is appointed by the settlor and is usually the person who has the power to appoint or remove trustees and beneficiaries.

Settlor: A person who creates a trust by transferring assets to trustees subject to the provisions of a trust deed.

Sham trust: A structure which was set up to look like a trust but in fact it was never intended to be a trust and the supposed settlors treat the assets as their own.

Supreme Court: The highest court in New Zealand.

Trust capital: Assets of the trust. These could include real estate, term deposits and share investments, and include the increases in the value of these assets, and gifts made to the trust.

Trust deed: The document that establishes the trust and includes a set of rules for the operation of that trust.

Trust income: The money a trust makes from the investment of its capital. It can include interest, rent and share dividends.

Trustee: A person appointed to hold trust assets for the benefit of beneficiaries. A trustee has legal control of the trust assets.

Will: A legal document which specifies how you want your personal assets to be administered and distributed after your death.