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Guide To The Costs And Risks Of Creating A Trust

Contributor:
Sorted.org.nz
Sorted.org.nz

Costs

The costs of forming a trust can vary hugely, but will often be in
the $2-3,000 range. These costs should include not only the trust deed,
but also all of the other documents and transactions: sale and purchase
contracts for property, acknowledgement of debt, mortgage alterations, conveyance of property, letter of wishes, gifting, new will and more. There can be quite a long list.

Check with your adviser
that any quote to set up a trust includes all of the different aspects
that need to be completed to get things set up and gifting underway.
The first of the gifts that you make should be included in the quote.

Risks of trusts

If a trust is not formed or managed well, there can be considerable inconvenience and cost.

You could also run the risk of having the trust declared a sham,
which would mean that the assets are not really the trust’s but are in
fact still yours. This can mean that a residential care subsidy is
declined, there may be more tax to pay (with penalties) and assets can
even go out of the family.

If the trust is a sham you may lose all of the advantages that you
were hoping to gain from it, and may be penalised as well. There have
been cases of family members suing other family members for a breach of
the trust’s provisions. The courts treat claims of this sort quite
seriously and they will normally be expensive to resolve.

Forming a trust is a big decision. If you are going to form one, make sure that it is established properly and managed well.

Content provided by sorted.org.nz, Your Independent Money Guide.

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