Is your Trust relevant and compliant?

With between 300,000 and 500,000 Trusts in New Zealand, they’re clearly a popular way to protect assets.

However, the Trusts Act 2019 came into force on 30 January 2021, bringing key changes to the way Trusts are run and imparts stronger duties upon Trustees.

If you have a Trust, you’ll need to weigh up the benefits of continuing with your Trust against the increased compliance costs.

So, why did you set up your Trust? Are those reasons still relevant? Here are some of the most common reasons for forming a Trust:

Asset protection: Trusts can protect personal assets from creditors in the event of personal bankruptcy or the insolvency of a company (if the donor was solvent when the assets were transferred into the Trust), and from any personal liability as a company director.

Continuity: Trusts can continue to operate after the death of the Settlor without any immediate need to sell assets to distribute among beneficiaries. This means assets can be progressively distributed to beneficiaries and distribution to vulnerable beneficiaries can be delayed. Trusts can now continue for up to 125 years (previously they were limited to 80 years).

Government claw-back: Previously, a key benefit of transferring assets into a Trust was to enable the Settlor/s to access residential care subsidies. However, new rules make this almost impossible to claim now if you have assets in a Trust.

Property (Relationships) Act: A Trust can be used to prevent family assets from becoming inter-mingled property and therefore exposed to relationship property claims in the event of a relationship break up.

Family Protection Act: A Trust can protect assets from family protection claims by disgruntled family members who disagree with the provisions of a deceased person’s Will.

Protection in old age: Trusts can be structured to reduce the risk that an elderly person will lose family assets through a relationship breakdown, undue influence of other family members, or poor financial decision making.

Income spreading: Income earned by the Trust may be spread among one or more beneficiaries to take advantage of their lower tax rates.

Is a Trust still your best method of asset protection? If you haven’t reviewed your Trust for a while, now is the time to do so. New legislation means new obligations and increased administration costs. Your Trust must now be compliant with the new legislation. Make sure your Trust is up to date, compliant, and relevant for your current circumstances.

This article is of a general nature only and is not intended to constitute specific advice. Need help to determine if your Trust is relevant and compliant? Call us on (06) 878 8824 for more information about our Trust Review service.

Understanding your Duties as a Trustee

If you’re a Trustee, it’s essential you get up to speed with your duties under the new Trusts Act 2019. While most of these duties were already considered best practice and some were mandated by common law, they’re now codified in law and must be adhered to.

There are four key changes (or clarifications) to your duties as a trustee.

There are new mandatory duties and default duties, as well as a raft of expectations around record-keeping and supplying beneficiaries with basic Trust information.

Firstly, mandatory duties apply regardless of what the Trust Deed says, these are:

  1. Know the terms of the Trust.
  2. Act in accordance with the terms of the Trust.
  3. Act honestly and in good faith.
  4. Act for the benefit of beneficiaries or to further the permitted purpose of the Trust.
  5. Exercise powers for proper purpose.

These are the minimum standard for Trustee Duties and it’s likely that Trustees have already been acting in accordance with these duties. Remember, these can’t be modified or excluded by the Trust Deed; they apply to all Trustees, no matter what the Trust Deed says.

Secondly, default duties apply unless they’re modified or excluded by the Trust Deed. These include:

  1. General duty of care.
  2. Invest prudently.
  3. Not exercise power for own benefit.
  4. Consider exercise of power.
  5. Not to bind or commit Trustees to future exercise of discretion.
  6. Avoid conflict of interest.
  7. Act impartially.
  8. Not to profit.
  9. Act for no reward.
  10. Act unanimously.

Most of the default duties are best practice and are unlikely to be modified or excluded by the Trust Deed. However, the duty not to profit and to act for no reward may need to be modified if there are Trustees who are paid for their role, for example, if you use a Professional Trustee.

If your Trust modifies or excludes any of the default duties, you must update the Trust Deed to explicitly state these modifications or exclusions.

The Trusts Act 2019 also places a duty on Trustees to retain core documents, such as:

  • The Trust Deed plus any variations
  • Trust minutes
  • Accounts and other Trust documents

Finally, Trustees are now obligated to notify beneficiaries about ‘basic Trust information’.

This includes the fact that they are a beneficiary, details about the Trustees, and their right to request a copy of the Trust Deed.

Beneficiaries also have the right to request other Trust information. Not all requests must be granted, but a request must be considered by Trustees based on factors set out in the Act.

This article provides a brief overview of Trustee Duties for educational purposes and is of a general nature only. It doesn’t constitute legal or professional advice specific to your particular circumstances. As a Trustee, it’s imperative that you understand your duties and are willing and able to continue acting as a Trustee.

We can help you understand your obligations and the impact the Trusts Act might have on your Trust. The looming date for compliance with the new Trusts Act 2019 is 30th January 2021, so contact us today – call us on (06) 878 8824.

New Trusts Act 2019

What you need to do

If you’re protecting your family property in a trust, there may be changes you need to make before the new Trusts Act comes into force in January 2021.

The changes to the Trusts Act (the first in more than 60 years!) aim to make trust law more efficient and accessible, lower admin costs, simplify core trust principles and essential obligations for trustees, and make it easier to resolve disputes.

While it might seem an eternity away, 2021 will whip around quickly.

We will be running seminars in the New Year for ALL our clients who have Trusts or are Trustees.

In the meantime here’s what you need to do:

1. Review your trust

Meet with your accountant and lawyer to review arrangements for your trust. There might be opportunities to improve your tax structure, reduce your risk profile and better your family’s financial situation.

2. Revisit your succession planning

The new legislation has extended the maximum life-span of trusts by 45 years, to 125 years. This means you’ll need to make significant succession planning adjustments.

3. Be prepared for beneficiary requests

The new law means most trust beneficiaries will be able to request financial reports on the state of the family trust and find out ‘who gets what’. Be prepared for extra admin, costs and possibly damage control if you’re having to avoid family issues around distribution of funds.

4. Know your responsibilities as a trustee, which include:

a. Knowing the terms of the trust
b. Acting according to the terms of the trust
c.   Acting honestly and in good faith
d.   Holding trust property
e.   Acting for the benefit of the beneficiaries or the permitted purpose
f.  Exercising trustee powers for a proper purpose

If you would like to discuss how these changes affect you, call us on (06) 878 8824 otherwise we will be in touch in the New Year with all of our clients who have Trusts or are Trustees.

Is a Family Trust right for me?

Family trusts are a popular way to protect and manage your assets, such as the family home, for you and your family, now and in the future. They can have a valuable role to play, but they’re not suitable for everyone.

Here are the pros and cons of family trusts to help you decide if it’s worth investigating further.

Five good reasons to form a family trust

  1. Protect your assets against claims and creditors in the event of business failure or a lawsuit.
  2. Set aside money for special reasons, such as a child or grandchild’s education.
  3. Ensure your children, not their partners, keep their inheritances.
  4. Protect your children from squandering assets or falling prey to financial scams before they’ve gained sufficient life experience to make sound decisions.
  5. They have a life of up to 80 years (or 125 years under the new bill) unless it’s wound up and distributed earlier.

Three disadvantages of setting up a family trust

Transferring your personal assets to a trust means you lose complete ownership and it will be the trustees’ responsibility to control them.
The time and cost involved in setting up a trust and meeting its annual accounting and administrative requirements.
Disgruntled beneficiaries have the power to sue trustees where trustees have acted in breach of trust. While it’s not common, it is happening more often.

What’s next?

Get professional advice from the start. We can answer any questions you have about trusts, being a trustee, administering a trust deed, and the proposed new Act. Call us on (06) 878 8824.

The Trustee Act is getting a makeover

Do you have a family trust? Thinking of forming one as a way to future-proof your assets for you and your children? Take note – the Trustee Act is getting a makeover. While there are still a few parliamentary hurdles to jump, now’s the time to get your head around what the new bill will mean for you and your business.

Last August, a new Trusts Bill was introduced to Parliament – the first big change to New Zealand’s trust law in more than 60 years. With up to 500,000 trusts operating in our country, they are an essential part of our legal system but the current legislation is no longer cutting it.

The current Act is narrow in scope, expensive and too complicated. The proposed bill will be more efficient, give better guidance for trustees and beneficiaries and make it easier to resolve disputes.

What changes will affect my business?

Extending perpetuity laws

At the moment, when you set up a family trust, it has a time limit of 80 years. Then you have to wrap it up and distribute the assets. The new legislation suggests extending it to 125 years, which may involve significant succession planning adjustments.

More information access for beneficiaries

In its draft form, the Trusts Bill proposes to give most trust beneficiaries the legal right to financial reports on the state of the family trust – meaning they’ll be able to request more information including ‘who’s getting what’. Whether beneficiaries have the right to request this information under our current law is a bit of a grey area.

Because this potentially opens a can of worms for trustees, this proposal has been controversial and has attracted a lot of feedback from trust advisers. We will have to wait until later in the year to see what changes (if any) are made to this proposal.

How will the Act change my role as a trustee?

Up until now, a trustee’s job description has been clear as mud with many families getting into strife unaware of their trustee’s responsibilities. If the new bill comes into place, a trustee’s role will be clearly outlined, and include:

  • Knowing the terms of the trust
  • Acting according to the terms of the trust
  • Acting honestly and in good faith
  • Acting for the benefit of the beneficiaries or the permitted purpose of the trust
  • Exercising trustee powers for a proper purpose.

I have a family trust, what do I need to do?

Get your paperwork in order

Document your trust actions carefully (if you don’t already) and make sure they’re accurate.

Revisit your succession planning

Talk to us to make sure your succession plans still make sense if this legislation goes through.

Review your trust

There might be opportunities to improve your tax structure, reduce your risk profile and better your family’s financial situation.

Know your CRS obligations

New Zealand uses the Common Reporting Standard for the automatic exchange of information (AEOI) to help tackle global tax evasion. This means Reporting New Zealand Financial Institutions (NZFIs) have new IRD obligations, so you’ll need to know if your trust falls into this category.

Join us for coffee!

A quick, pain-free chat now (about all of the above) could save mountains of paperwork, and headaches, down the track. Give us a call, email or book a meeting time.

If you would like to discuss how these proposed changes may effect you, call us on (06) 878 8824.

 

Think before you Leap

What are my responsibilities as a trustee?

Whether you’re thinking of becoming a trustee for your own family trust or someone else’s, it’s important to know your obligations under the current law before accepting the role.

8 things to know before becoming a trustee:

  1. It’s a legal responsibility with a lot of work involved (most often voluntary) and you could end up being liable for losses made by the trust if you don’t do the job properly.
  2. You’re in it for the long haul – some trusts have a set end-point, ie: when a child turns 18, but others can go on for over a century.
  3. You must know and understand the trust deed, all associated documentation and the trust’s property, assets and liabilities.
  4. You’ve got to stay impartial when managing or distributing trust property to beneficiaries – no favourites!
  5. You have to ensure all relevant documentation with regard to the trust’s assets are signed by all trustees, not just the ‘Mum and Dad’ of the trust (check the trust deed, though, in case it says otherwise).
  6. When making trust decisions, you have to agree with the other trustees (unless the trust deed says otherwise). So you need to be sure that you can work well with the other trustees before taking on the job.
  7. You must actively participate and make all the decisions – no delegating or relying on others to do your job.
    Paperwork will be your friend – keeping accurate accounts and recording all trustee decisions as requested by beneficiaries will keep you out of deep water.

If you would like to discuss more about becoming a trustee, call us today on (06) 878 8824.