Buying a property with a trust - what does that look like?

Do you have assets you want to protect, loved ones you want to provide for, or want more options for control over what happens to your assets and who benefits from them?  A trust ensures that ownership of your property is transferred to the right people at the right time. 

In this article, we explain what a trust is, how it works, and the considerations when buying a house as a trust asset. Keep reading to learn of common pitfalls to protecting your real estate and other assets. 

What is a trust? 

A trust is a legal entity created and documented in a deed for owning assets on behalf of the trust beneficiaries. Trust assets are managed by one or more trustees who act in the interests of the beneficiary(s). These assets will be protected from claims made against you, particularly if you gift the sale price to the Trust.

Trust assets

Trust assets can be anything but often include:

• Bank accounts
• Real estate
• Insurance policies
• Stock, bonds, and other investments
• Tangible personal property, such as furniture or antiques
• Cryptocurrency

Who is involved in managing a trust?

Key stakeholders in a trust include the settlor, trustees, and beneficiaries. 

Trust settlor

The person or people who create the trust to benefit others. They typically have the power to appoint or remove trustees and may or not be a trustee and/or beneficiary themselves.

Trust beneficiary

Beneficiaries are the people for whom the assets are held and who benefit from the distribution of these assets. Most commonly, beneficiaries include family members, friends, or charitable organisations. 

Trustees

The trustees include one or more people who manage the trust. It is wise to appoint an independent third-party trustee who is not a relative or beneficiary, such as a lawyer or accountant. There is often more than one trustee and this may include the settlor. 

Why set up a trust?

If you have acquired or accumulated a large amount of money or a property, a trust allows you to protect your claim to it. In cases where the Property Relationships Act or Family Protection Act apply, this may help to keep ownership in the right hands during your lifetime because of a relationship breakdown or on your death.

A trust may be useful for the following reasons:

• To protect assets against claims and creditors. 
• To set aside money for special reasons, such as a child’s welfare.
• To ensure your children’s inheritances are not split with their partners.
• To manage the risk of unwanted claims on your estate when you die.

A trust ensures that the assets will not go through the court process of probate, which reviews your will and confirms the appointment of an executor and distribution of your assets. 

How to set up a trust

A trust is created during a person's lifetime and is independent of that person but allows assets to be held for the beneficiaries named.

1. Seek legal advice

Speak with your lawyer and accountant for professional advice. Trusts can be quite complex and should usually be formed by an experienced lawyer.

2. Create a Trust Deed

A trust deed is a required legal document that formally names the key stakeholders and lists the various management rules for the trust. 

3. Choose a successor trustee

As part of the trust deed, the settlor may designate a process to be followed or person or financial institution to be a successor to the appointed trustee(s). The successor can be a beneficiary.

In New Zealand, all trusts are subject to The Trusts Act 2019. Settlors and trustees should review their trust deed from time to time.

Potential problems with trusts

Less control over low-level decisions

Since trust assets are managed by trustees, you won’t have control over your assets as your personal property. While you may exert better control over the long-term ownership of the assets, their day-to-day administration is now in the hands of the trustees. 

Some assets should not be placed in trust

While many assets can be placed in a trust, think carefully about including retirement assets, assets held overseas, vehicles, or cash. You are likely to want to keep some assets under your personal control. If in doubt, speak with your lawyers before adding any new assets to your trust. 

Real estate in a trust 

One of the most common assets in trust is real estate. If you own real estate or are interested in buying a property, you may want to place it into a trust for your family members. This can avoid probate and protect your loved ones from a potential unwanted ownership claim on the property. 

To transfer your home into a  trust, you will have to prepare, sign, and register a new deed for the property. If you have a mortgage for the property, check with your lender if they require you to fill out additional paperwork. 

Gifting to a trust

Most property can be gifted to a trust without tax consequences for those beneficiaries you have 'natural love and affection' - relations.

Help family members to get on the property ladder

If you are a parent hoping to assist your children in the property market, you can choose to gift the house, sell the house, or become a co-owner. Whether your children are actively looking for a property or you are simply planning ahead, a trust enables you to protect your investment in the meantime.

Relationship property 

Where two people who are both over the age of 18, married or in a civil union, or de facto relationship, and have lived together as a couple for three or more years, property can become property of that relationship.

According to the Property Relationships Act 1976, any property you share (live in) with your de facto partner during the time you are together is liable to be split evenly upon separation. Legally, each person owns half of the property at the end of the three years.  

If you have helped your child buy a house, their de facto partner may be eligible for half, even when the house was bought before the de facto relationship began. In situations like these, owning a house as a trust ensures that only the beneficiaries have a claim on the house if the relationship ends. 

Trust Records

It is an affirmation of the existence of a trust and common sense to maintain a written record of trustee decisions, financial assets, liabilities, income, and expenditures. A digital Word document or similar is perfect for this.

Trust House Conveyancing

If the trustees decide to buy a property in trust or you want to transfer your current property into trust, you will need conveyancing services. Common services for trust houses include, but are not limited to:

• Property title checks
• Prepare the sale and purchase agreement
• Anti-money laundering checks
• Settlement fund transfers and or deeds of gift
• Working with banks and brokers for lending
• Working with local and regional councils for rates

The property transaction process can be complicated so you must enlist the support of experts in property law to manage it for you. 

By working with the Halliwells team via LegalPath, you can complete the entire conveyancing process online. Our expert team will provide full-service support throughout the transaction and ensure everything runs smoothly.

To find out more about online conveyancing, simply request a free, no-obligation quote on our website.