Both businesses and individuals can find their assets threatened by unexpected changes in circumstances. These changes can cause complex legal issues which could be avoided or minimised through proper asset structuring such as the use of trusts or pre-nuptial agreements.
It is also important to consider what happens if you become seriously ill or pass away. If this happens to you and you have not planned properly for the future, decisions about your affairs will be made by someone else – and those decisions may not reflect your wishes.
If you have an estate or Will query, please contact our team on estates@hobec.co.nz.
Our Experience Includes:
- Wills (including international Wills)
- Living Wills (specifying medical treatments you would/would not like in the event you cannot communicate)
- Family Trusts
- Charitable Trusts
- Advice to trustees
- Resettlement of assets into Trust structures
- Winding up of Trusts
- Independent trustee services
- Forgiveness of debt and gifting programmes
- Powers of Attorney
- Enduring Powers of Attorney
- Relationship Property
- Contracting Out Agreement/Pre-nuptial Agreements
- Relationship Property Agreements/Separation Agreements
- Applying for Property and Personal Care Orders for someone who has lost capacity
- Retirement Villages and Rest Homes
- Residential Care Subsidy Applications
- Maximisation of government subsidies and other benefits
Our Trusts, Asset Protection & Estate Planning Team
John Mackay
Tauranga
tel:+6479272751
mailto:john.mackay@hobec.co.nz
Luke Stewart
Tauranga
Whakatane
tel:+6475713835
mailto:luke.stewart@hobec.co.nz
Leesa Speed
Tauranga
tel:+6479280194
mailto:leesa.speed@hobec.co.nz
Georgina Smith
Tauranga
tel:+6475778684
mailto:georgina.smith@hobec.co.nz
Joel Murphy
Tauranga
tel:+6475700682
mailto:joel.murphy@hobec.co.nz
Natasha van der Wal
Rotorua
Tauranga
tel:+6479287097
mailto:natasha.vanderwal@hobec.co.nz
Dean Thompson
Tauranga
tel:+6479280191
mailto:adele.cassidy@hobec.co.nz
Bill Holland
Tauranga
tel:+6475713855
mailto:bill.holland@hobec.co.nz
Allen Hunter
Tauranga
tel:+6475713850
mailto:allen.hunter@hobec.co.nz
Hilary Anderson
Tauranga
tel:+6475713836
mailto:hilary.anderson@hobec.co.nz
Nicky Wise
Rotorua
Taupo
tel:+6472620437
mailto:nicky.wise@hobec.co.nz
Hester Sutherland-Stacey
Tauranga
tel:+6475713833
mailto:h.sutherland-stacey@hobec.co.nz
Dan Broadhurst
Whakatane
tel:+6479262280
mailto:dan.broadhurst@hobec.co.nz
Rebecca Steens
Tauranga
tel:+6475700687
mailto:rebecca.steens@hobec.co.nz
Rachel Withington
Tauranga
tel:072620455
mailto:rachel.withington@hobec.co.nz
Katherine Dyer
Tauranga
tel:+6479287095
mailto:katherine.dyer@hobec.co.nz
Sarah Lawson
Rotorua
Tauranga
tel:+6473495050
mailto:sarah.lawson@hobec.co.nz
Courtney Sinclair
Rotorua
Tauranga
http://tel+6475700681
mailto:courtney.sinclair@hobec.co.nz
Jacqueline Bell
Tauranga
tel:+6472620457
mailto:jacqueline.bell@hobec.co.nz
Sarah Burns
Tauranga
tel:+6479272237
mailto:sarah.burns@hobec.co.nz
Giorgia Robertson
Tauranga
tel:+6475713839
mailto:giorgia.robertson@hobec.co.nz
Jim Thomas Lee
Tauranga
tel:+6472620423
mailto:jim.lee@hobec.co.nz
Josh (Vasheesh) Bhageerutty
Tauranga
tel:+6472620453
mailto:josh.bhageerutty@hobec.co.nz
Jo-Anne Savage
Tauranga
tel:+6475778006
mailto:joanne.savage@hobec.co.nz
Diane Flynn
Tauranga
tel:+6475778687
mailto:diane.flynn@hobec.co.nz
Kathy Julian-Ward
Rotorua
Whakatane
tel:+6473495561
mailto:kathy.julian@hobec.co.nz
Krystal Proctor
Tauranga
tel:+6475778001
mailto:krystal.proctor@hobec.co.nz
Heather Elmsly
Tauranga
tel:+6479280198
mailto:heather.elmsly@hobec.co.nz
Lauren Paterson
Tauranga
tel:+6475700685
mailto:lauren.paterson@hobec.co.nz
Charlene Porteous-Watt
Rotorua
tel:+6473495750
mailto:charlene.porteous-watt@hobec.co.nz
Ella Rose
Tauranga
tel:+6475778681
http://ella.rose@hobec.co.nz
Jenna Riches
Tauranga
tel:+6475723196
mailto:jenna.riches@hobec.co.nz
Related News & Resources
September is Wills Month.
A Will is perhaps the most important piece of paper you can leave behind to support your loved ones. Why do you need a Will, what happens if you pass without a Will, and how best should you prepare your Will for your circumstances?
Download our Wills Month Information Pack.
September is Wills Month. Holland Beckett offer a free “Simple Will” if you leave a gift to charity in your Will.
Speak to the Holland Beckett Estates team about Wills Month and what charity giving options would best suit you.
Contact the team on estates@hobec.co.nz or call our offices on 07 578 2199.
Hilary Anderson joins Holland Beckett as Special Counsel
Holland Beckett is pleased to announce that Hilary Anderson has joined the firm as Special Counsel.
Hilary is a specialist property and commercial lawyer and joins our property and commercial law practice working closely with Dean Thompson and his team.
“The appointment comes at a time of significant momentum for the firm as we grow our commercial and development practices,” says Dean Thompson, Partner at Holland Beckett. “Hilary has always impressed us in past dealings with her common sense and commercial approach. She will be a great addition to the team.”
Hilary enjoys a wide variety of work for private clients, property developers and commercial clients, with expertise in residential and commercial property transactions and finance, property development, conveyancing, subdivisions, commercial leasing, franchising and contract matters. She also has a special interest in trusts, asset planning and protection with significant experience in complex or large estates. Named as one of New Zealand Lawyer’s Rising Stars in 2022, Hilary is a driven but straightforward and approachable lawyer.
Born in Ōhope, Hilary has strong connections to Whakatāne and the Eastern Bay of Plenty. She has called Tauranga home for more than a decade and has strong relationships and an incredible reputation in the community.
Holland Beckett is delighted to have identified a talent and to have her join the team at a time of growth. The Bay of Plenty based firm has almost outgrown their current Tauranga premises and will move to new offices in the CBD next year, marking the next phase in the firm\'s success. Dean Thompson adds, “we have always got room for good people.”
Please reach out to Hilary for any property or commercial enquiries hilary.anderson@hobec.co.nz or 07 571 3836.
Incentives for a Trust in light of recent regulatory reforms
Safeguarding your Legacy
Trust structures have been a cornerstone of asset protection for centuries, particularly for those wishing to safeguard valuable assets like investment portfolios. However, the legal and tax landscape is constantly in flux. To ensure these structures remain effective, individuals seeking asset protection should follow four key steps on their informed decision-making journey:
First, it is crucial to grasp the basic concept of a Trust after the new Trusts Act 2019 which came into force on the 30th January 2021. This involves knowing how a Trust works and the roles of parties such as the settlors, trustees, and beneficiaries.
Establishing a Trust involves thoughtful steps, including choosing an independent trustee who is not a beneficiary. The independent trustee’s role is to act in the beneficiaries’ best interests, avoiding or managing any conflicts.
Understanding the purpose of the Trust is essential. This involves considering any specific needs or long-term goals for asset protection and aligning the Trust\'s structure and provisions to the desired outcomes.
Finally, ongoing administration by the chosen trustees is vital to safeguard the best interests of the beneficiaries over time. Regular reviews ensure that the Trust complies with evolving regulations and effectively fulfils its intended purpose.
Trustees
Being a trustee comes with significant responsibility, given its fiduciary position. Understanding the Trust Deed thoroughly and adhering strictly to its terms is crucial. Trustees must exercise care, diligence, and act in the best interests of beneficiaries when making investment decisions. Delegating duties is not sufficient; active participation is essential. Trustees should maintain accurate records and disclose information appropriately to beneficiaries. Additionally, addressing health and safety risks related to the Trust assets is part of their duty. Unanimous decision-making among trustees is mandatory unless the Trust Deed specifies otherwise.
Tax
Effective 1st April 2024, the tax rate for Trust income has increased from 33% to 39%, aligning with New Zealand’s top personal income tax rate. This change aims to create a more balanced system. However, there are exceptions:
Trusts earning less than $10,000 annually will maintain the old 33% tax rate.
Estates will benefit from a lower 33% tax rate in the year of death and the subsequent three years before transitioning to the new 39% rate.
Trusts specifically supporting disabled beneficiaries, energy consumers, and legacy retirement funds will continue to be taxed at the lower 33% rate.
With the recent increase in Trust tax rates, trustees have shown concerns about their ordinary actions being misconstrued as tax avoidance. To address this, Inland Revenue has issued guidance on permissible actions that, when devoid of artificial or planned elements, are unlikely to be construed as tax avoidance. These actions include:
Adjusting a Trust-owned company’s dividend pay-out policy (for example, distributing retained earnings before the new rate or reducing dividends afterward).
Directly distributing income to beneficiaries in lower tax brackets.
Incorporating companies within the Trust for asset transfers at the 28% company tax rate.
Investing in Portfolio Investment Entities (PIEs) with a 28% tax rate as a tax-efficient alternative to investments subject to the full 39% trustee tax rate.
Winding up the Trust as a valid option in all these potential scenarios.
Seeking ongoing legal, financial and tax advice in this respect is crucial.
AML
Effective 1st June 2024, New Zealand\'s Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regulations introduce stricter Trust verification procedures. The key changes affect customer due diligence (CDD) requirements. Reporting entities must now obtain and verify specific details related to trusts:
The Trust\'s legal structure and proof of existence (i.e. The Trust Deed).
Ownership and control structure (identifying who ultimately controls the Trust).
Governing powers that bind and regulate the Trust.
Identity of the settlor(s) (person who established the Trust) and protector(s) (if applicable).
It is important to note that, for AML/CFT purposes, the Trust itself is considered the \"customer\", not the individual trustees. Despite this, a Trust is legally classified as an “arrangement,” not a “person.” Consequently, CDD requirements also apply to the individuals who ultimately control the Trust—the beneficial owners. These individuals, including trustees, hold significant direct or indirect ownership or control over the Trust. While a settlor creates a Trust, they qualify as a beneficial owner only if they maintain substantial control, such as the power to appoint trustees amongst others.
Key Conclusion
Trust structures serve as powerful tools for managing wealth across generations. Generally, they offer significant advantages, including asset protection from creditors and streamlined wealth transfer to future generations. However, it is essential to weigh the costs, complexities and benefits. A thorough analysis of your specific circumstances will help determine whether a Trust remains the best approach, especially considering the changing tax landscape and increased administrative burden.
Our team at Holland Beckett specialises in estate planning and trust matters and is ready to assist you.
Why do I need an Independent Trustee?
Many people question, what is an independent trustee, what do they do and what value do they bring to my trust?
What is an independent trustee?
An independent trustee is a person or entity who act as a trustee of a Trust where that person or entity has no interest in the assets of the Trust - meaning they are not a beneficiary of the Trust and are not entitled to share in the assets of the Trust.
An independent trustee is often a ‘professional trustee’ such as a lawyer or an accountant. However, a trustee does not have to be a ‘professional’ to be independent, they just have to be a person who is not a beneficiary of the Trust.
Why should you have an independent trustee?
Having an independent trustee is not a legal requirement under the Trust Act 2019, however is recommended for the following reasons:
More credibility for the Trust and is less likely to be susceptible to any successful legal challenge in the future;
Adds an element of transparency to the Trust, so if any third party is looking at the Trust they can see that there is an independent person who is moderating the decisions of the trustees and ensuring the Trust is not regarded as a ‘Sham Trust’ and therefore losing any protection the Trust was intended to provide;
Assists in the better management and administration of the Trust. As outlined above, often the independent trustee is a solicitor or accountant who is familiar with trust legislation and can ensure that the Trust is complying with the Trusts Act 2019. They also may have an ongoing relationship with the family which supports an understanding of the underlying reasons for the Trust; and
Some trust deeds require the Trust to have at least one independent trustee.
Having a Trust to protect assets will only work if the trustees carry out their functions correctly, which includes administering the Trust properly. This is where an independent trustee can assist the other trustees by ensuring the Trust and trustees meet their legal duties and responsibilities.
The implementation of the Trusts Act 2019 has increased the scrutiny on Trusts, trustees’ duties and increased potential liability. These changes require independent trustee(s) and independent trustee companies to be more active in the administration of and record keeping for your Trust. As a result, there are a number of independent trustees who are either resigning, declining to take on new Trusts, or are charging an annual fee on the basis of the independent trustee services.
Now is as good a time as any to consider whether an independent trustee is required for your Trust, and to review your trust deed and individual situation to make sure your Trust is fit for purpose and complying with current requirements under the Trusts Act 2019.
Succession Planning – Case Study: John Johnson
John Johnson is a 68 year old widower. He has a complying Family Trust that owns the majority of his assets (only his KiwiSaver is in his personal name). The Trust was established several years ago when John operated a business, for creditor protection. On his death, John intends for all his personal assets and the assets settled on the Trust to be divided equally between his daughters, Sandy (who lives in Sydney) and Wendy (who lives in Wellington).
John’s lawyer says it is generally not advisable for overseas family members to:
be the executors of your Will; or
be appointed as your attorney for either property or your personal care and welfare matters.
Having received advice, John has nominated Wendy alongside his solicitor, as his executors and trustees. For his Enduring Power of Attorney documents, John appoints Wendy and a family friend who are based in New Zealand.
John is also advised about the Trust Act 2019, which has placed increased obligations on trustees by introducing, amongst other things, the presumption of making basic Trust information available to all beneficiaries (whether they are likely to benefit or not) and the duty to invest Trust assets prudently.
John’s lawyer suggests that now would be a good time to review his Trust to determine whether:
the Trust is still needed;
whether trustees are meeting their obligations; and
whether the Trust Deed can or should be varied to reflect the changes introduced in the Trusts Act 2019.
The advice to John is that if you don’t have a Trust for a really good reason, like asset and creditor protection, a Trust may just be another unnecessary and costly complication in life. As John no longer operates his business, he does not need the Trust for creditor protection.
However, John’s lawyer indicates that there may be benefits in keeping the Trust for residential care. In John’s case, he is likely to obtain a residential care benefit by keeping the Trust, because his personal assets fall under the threshold of $273,628, his only income is superannuation, and the Trust assets were gifted some time ago in line with MSD’s gifting rules for the residential care subsidy.
The lawyer advises that there are other estate planning options to maximise residential care benefits for couples without a Family Trust. For example, if a couple’s main asset is their home then they could consider life interest Wills so that if the survivor of them needs care, half of the equity in the property is protected. Where a single person owns a property in their personal name there are less options.
Tax is also a consideration. John is advised that in many overseas jurisdictions, distributions from Trusts are taxed more harshly than distributions from a person or from their estate. John is cautioned that if Sandy from Sydney is to receive a distribution from the Trust (rather than his estate), there may be tax consequences. He is advised to speak to his accountant about this. Ultimately, John would have to weigh up the potential benefit of keeping the Trust in the case that he went into residential care, against the potential tax consequences for Sandy.
John suddenly passes away. Wendy from Wellington receives a half share of the Trust assets and estate assets without any deduction (as generally in New Zealand there are no tax consequences for receiving a Trust capital distribution). However, in accordance with Australian tax rules Sandy from Sydney’s half share is taxed as income and she therefore receives a significantly smaller share than her sister.
Succession planning – Is it time to review your affairs?
As your circumstances change, your Will and wider estate planning (such as Family Trusts and Enduring Powers of Attorney) should be reviewed.
It may be that what once was suitable for you and your family, is no longer practical. Here are some important events that should trigger a review:
change in relationship status (for example, a marriage will automatically revoke your Will but a separation will not);
change in financial situation;
change in health (yours or your families);
sale or purchase of a property;
births/deaths;
family members moving overseas; and
law changes – such as the Trusts Act 2019.
If it has been a while since you last reviewed your estate planning, or if you have had a change in circumstance, we encourage you to speak to a professional about reviewing your wishes. In particular, if you have overseas family members, chat to your lawyers about your estate planning to ensure unnecessary cost and complications are avoided.
Gift vs Loan
Due to the rising cost of living and interest rates on mortgages, it is not uncommon for families to advance money to their loved ones to help them on to the property ladder. Due to the natural relationship, these advances usually go undocumented. However, there are several factors that need to be taken into account before making such an advance. If you want to assist your child with a house deposit, you need to ensure the advance is correctly recorded. Are you expecting them to pay you back? If so, is the repayment with or without interest? Or is it a “no strings attached” gift? GiftMoney passed from parent to child is generally regarded as a gift, unless evidence proves otherwise. There is no obligation for a gift to be paid back by the recipient(s). Care needs to be taken where you are gifting money to your child and their spouse, such as to help them into a property. Should that relationship break down, the spouse would not necessarily be required to pay back any portion of the gift, therefore walking away with half of the gifted money. Gifting certificates are often required by a bank where a family member is advancing a portion of the purchase price. This is so the bank isn’t in competition with anyone to get their money back should the loan end up in default. There are ways to record a loan on terms that acceptable to the bank, while also protecting the advance. The document needs to be worded in such a way that doesn’t impede on the banks rights to be “first in line” if the loan defaults. Other considerations include whether this will affect any inheritance you may plan to leave. Are you intending for your child to receive less inheritance than their siblings due to this gift? If so, your Will also needs to be updated accordingly. LoanUnlike a gift, a loan is repayable on terms agreed at the outset. The loan can be interest free (or very low interest) and can be repayable “upon demand” rather than a specified date or loan term. However, as noted above, when banks are involved they will usually not allow a loan with interest or a specified repayment date, as this can affect the banks priority if the loan is defaulted. A loan provides protection in the scenario where you are advancing money to your child and their spouse. If this relationship later breaks down, you can “call up” the loan and have this paid back. You can then re-lend the money to your child once the separation is complete for another purchase, if you choose to. Again, estate planning comes in to play. Is the loan forgiven on your death (assuming it hasn’t already been paid back)? Or is the recipient required to pay back your estate? More considerations are needed when a Trust or other entity is involved, as well as further relationship property aspects not covered here. If you are unsure whether you should be making a gift or a loan, get in touch with us and we can assist you through the process.
Life Interest Wills
In a typical family situation it is common for a couple to leave their entire estate to each other, and for their Wills to provide that after they have both died the family estate will go to their children. This is commonly known as a mirror Will.
What if, however, you have children from a previous relationship? You may want to provide for your children in your Will, but also wish to make sure your new partner is looked after.
A mirror Will is one option. However, these Wills do not create a legally binding agreement between couples. Either spouse or partner is therefore free to change their Will at any time during their lifetime.
While a couple may be comfortable relying on their new partner to provide for their respective children in the surviving spouse or partner’s Will, these Wills frequently result in claims against the estate made by the deceased spouse or partner’s children from a previous relationship.
To help avoid such claims and to offer peace of mind, a life interest Will may provide the answer.
What is a life interest?
In your Will you can grant to somebody a life interest in an asset. This will give that person the right to use that asset for the rest of their life. On their death, the asset will pass to the people named in your Will.
A life interest can be a good way to provide for dependents while still ensuring the asset will go the named beneficiaries.
A common example is where a person provides a life interest in the family home to a spouse or partner, and once their spouse or partner dies the family home will pass to the Will-maker’s children.
Often the couple will own the family home in equal shares. This allows each of them to deal with their 1/2 share in their Will in the way they choose.
A person may also provide a life interest in other assets such as funds in a bank account, shares or other investments. As an example, the person’s spouse or partner will have the use of the income generated by such assets during their lifetime, after which the capital remaining can be distributed to the Will-maker’s children.
A life interest Will provides a basic level of asset protection. Any assets subject to a life interest will be held by the trustees appointed in the Will and do not legally belong to the person with the benefit of the life interest (such as the surviving spouse or partner). It can therefore provide peace of mind to the Will-maker that all of their loved ones will be looked after.
On the other hand, a life interest can be restrictive for the surviving spouse or partner. The surviving spouse or partner effectively loses control over assets that they may have considered to be theirs if they were used by the couple to benefit both of them. Any dealings with the asset will require the trustees of the Will to consent, and will be subject to the terms of the life interest in the Will. A life interest Will can also mean the children may not see their inheritance for many years.
Holland Beckett Law is here to discuss your particular circumstances to determine if a life interest Will is right for you.
Incapacitated Trustee
The Trustee Act 1956 reigned for over 60 years before the Trusts Act 2019 (“the Act”) came into force. The Act aims to simplify Trust-related issues by providing mandatory and default administrative trustee duties. One scenario under the spotlight is the process of removing an incapacitated trustee. Many Trusts that were established in the ‘Trust boom’ around 20 years ago may now be faced with a trustee who is losing capacity. This can be a tricky situation when trustees are trying to deal with Trust assets, especially in a family context. Fortunately, a Court order is no longer needed to remove a trustee.
Trustees can now exercise a compulsory removal of a trustee if they lose capacity (s104 of the Act). This can apply regardless of what your Trust Deed specifies, or fails to specify, in respect of removing an incapacitated trustee. It is then the question of who has the power to remove that trustee which is a case of reviewing the Trust Deed together with the Act. Removal of an incapacitated trustee is a compulsory ground of removal available to the Appointer and if the trustee has lost the capacity to perform the functions of a trustee then it would make sense to remove them.
Review your Trust Deed first
Your Trust Deed may specifically nominate someone with the power to remove trustees. That person may remove a trustee in accordance with their Trust powers or by using s104 of the Act. The Act’s processes may be more suited in some circumstances.
If the Trust Deed is silent on the removal of an incapacitated trustee then follow the Act
The Act’s process is used to account for the situation that the Trust Deed has not anticipated. In reality this is quite common and a good incentive to review or amend your Trust Deed.
The Act states if the nominated person in the Trust Deed is unwilling or unable to remove the incapacitated trustee then the remaining trustees can do so. If there are no remaining trustees or they are unwilling to act, then further individuals may be granted the power to remove. They can include:
a property manager appointed under the Protection of Personal and Property Rights Act 1988 to act as manager of the trustee’s property, or;
a person holding an enduring power of attorney over the property of the incapacitated trustee, or
a liquidator of a corporate trustee that is in liquidation.
A medical certificate confirming that the trustee of concern no longer has the capacity to carry out the role of a trustee will form the basis of the documentation required to give effect to the removal. Holland Beckett Law can guide you through this process.
Leaving on a Jet Plane
With our borders opening up again, the lure of hopping on a flight that lasts more than 2 hours is strong. Regardless if you are packing your bags for two weeks or two years, there are several things you should consider before you get to that boarding gate.
This list of considerations could become extensive pretty quickly, so we have limited our comments strictly to a few key matters to ensure your legal ‘house is in order’ and we leave you to decide whether to exchange your money to Pounds Stirling now or on arrival, and how many pairs of shoes are too many to pack.
Do I need a Will?
The short answer is yes. A Will is an important document, regardless of your age and stage. Every adult should consider having a Will. It does not have to be a complex or time-consuming process. At Holland Beckett Law, we understand that your focus might be on different things, such as whether to go to Rome or Venice (or both), so we can prepare a Will for you that is fit for purpose and meets your present needs. [click here for more information]
Should I have Enduring Powers of Attorney in place?
The common misconception is that Enduring Powers of Attorney are reserved for ‘old people’. This is incorrect. In the instance of the proverbial “hit by a bus” (or falling off a scooter may be closer to home), if you have an accident or injury that renders you unable to make your own decisions then these documents assist your health professionals and family know whom to speak to and manage your affairs. But take accident or injury out of it, what happens if you are trekking Everest (there’s no wifi up there…) and a critical document needs to be signed or a funds transfer made – with these documents in place you can leave your affairs in the hands of the people you trust, and carry on with getting that perfect Insta shot at the summit. [click here for more information]
Who can administer my Trust in my absence?
Trusts are a separate consideration, and require a (similar but) separate document to enable someone to act for you in your capacity as a trustee in respect of the assets of the Trust whilst you are overseas (rather than in your personal capacity for your personal property). If you have a Trust, your Will should also include provisions to deal with the Trust should the worst occur. At Holland Beckett Law, we can provide you with guidance on how best to have these matters structured during any absences from NZ. [click here for more information]
Further, Trusts are governed by the Trusts Act 2019 (which came into force on 30 January 2021) which, amongst other things, reformed the duties and obligations on trustees particularly regarding disclosure obligations to beneficiaries. As part of the above structuring process, we can advise you on how the Trusts Act 2019 will impact you.
Here at Holland Beckett Law, we understand that the ‘Big OE’ is a rite of passage for lots of kiwis, and it is a very exciting time – but even the best laid plans go awry, so preparation is key. We would be happy to discuss with you how you can best prepare yourself and your affairs to ensure smooth sailing….hopefully around the Greek isles.
Update on trust law – can a trustee consider settlor wishes or other trust benefits?
Trustees and beneficiaries of trusts should be aware of a recent court decision, which clarifies two factors that trustees can take into account when deciding whether to distribute trust assets.
In December 2021, the Court of Appeal’s decision in Kain v Public Trust [2021] NZCA 685 has given trustees some guidance on whether two types of factors can or should be considered by trustees.
These are:
A settlor’s wishes after the trust was established; and
If a beneficiary has received (or can expect to receive) a benefit from a separate but related trust.
Settlor’s later wishes
When establishing a trust, a settlor expresses their intention (or wish) for how the trust’s property is to be used. Later on, a settlor may convey further or different wishes for the way in which they want the trust property to be used.
The Court of Appeal held that:
A trustee is entitled to take into account wishes and subsequent wishes if they are consistent with the terms and purpose of the trust. To do this, a trustee can read and understand these wishes; and
If the more recent wishes are inconsistent with the settlor’s original wishes, a trustee can consider the more recent wishes, however it is a matter for the trustee’s discretion to actually give effect to those recent wishes (in effect overriding the original wishes).
An example would be, as in the Kain case, if there is a statement by the settlor wanting equality between beneficiaries that is not contained in the trust deed. Depending on the circumstances, this wish for equal treatment may be able to be taken into account by a trustee, but those wishes do not have to be followed.
Interrelated Trusts
The Court of Appeal confirmed the general principal that a trustee must take into account all relevant considerations, and not take into account any irrelevant ones. The Court then held that where there are multiple trusts that are related (ie. are connected to one family group), it can be relevant what a beneficiary has received (or might be expected to receive) from a related trust. But it is not a requirement to do so.
For example:
There are two trusts relating to the Smith family, Trust A and B. Peter is a beneficiary of both. Mary, the trustee of Trust A, wants to make a decision in relation to Trust A’s assets. Peter has received a house from Trust B. Mary can take account of the house which Peter has received from Trust B when making her decision, but she does not have to.
At Holland Beckett, our litigation and estate lawyers can guide trustees through making difficult decisions, or can give advice to beneficiaries about decisions that have been made by trustees if you think the decision is wrong. Please do not hesitate to get in contact.
Changing the Trustees of your Trust
There is currently a Bill before Parliament that will amend many aspects of Trust Law contained in the Trustee Act of 1956. The amendments are likely to come into force in 2019. In anticipation of the overhaul of Trust Law it is a good time to consider whether the current trustees of your Trust are still the best people for the role.
There are various circumstances which may cause you to consider changing a trustee:
Change in Circumstances
A change in a trustee’s personal circumstances can have a direct impact on Trust management. For example, depending on how active your Trust is, a trustee moving overseas creates a geographical barrier that can transform into an administrative circus. With the increasing compliance obligations there are more and more documents for trustees to sign in accordance with specific witnessing requirements, so needing documents to be signed overseas is an added administration expense. In addition, having a trustee based outside of New Zealand can have significant tax implications.
Ageing Trustees
A trustee displaying early signs of dementia or another long-term medical illness should not be taken lightly. Trust Deeds typically direct that all decisions must be unanimous. If a trustee is deemed to have lost mental capacity then unanimous decisions are no longer possible. A mentally incapacitated trustee cannot sign any documentation, including Agreements for Sale and Purchase of Real Estate and even a Deed of Retirement of Trustee to enable them to be removed from Trust property. It is advisable to retire a trustee that falls into this category before they lose their mental capacity. Otherwise, an application to the Court is the only way in which you can remove the trustee and enable the Trust to continue to operate. This is a costly process that can take a number of months. It is important to note that while Enduring Powers of Attorney are very useful documents for dealing with a person’s affairs, they cannot be used for removing a trustee from a Trust.
Adult Beneficiaries
The beneficiaries of your Trust may be your children who are now adults. Perhaps it is suitable for a particular child or children to play a role in the administration of the Trust. It is common for settlors (holding the power of appointment of trustees) to appoint their adult children as replacement trustees in their Will if the Trust is to operate beyond their passing. However, involving your adult children in the Trust during your lifetime could be a beneficial learning experience and lighten the load on other trustees, rather than waiting until your death to thrust the new-found duty upon them.
Professional Trustees
A professional trustee’s retirement from accounting or law may be on the cards or you have moved your Trust’s affairs to a new firm. Appointing a new professional trustee or a trustee company could be a prudent change and is often easier to do while your existing independent trustee is still around and able to sign documents.
A change in trusteeship is usually formalised by a Deed of Retirement and Appointment of Trustees to be signed by the retiring, continuing and new trustees. Once the deed is signed, it can then be used as the base document to implement the change of ownership of the Trust’s assets. This could include real estate, shares and other investments. Bank accounts and insurance policies also have to be updated.
Changing the trustees of your Trust is not a two minute task, however, it is a process that enables the smooth operation of your Trust which ultimately benefits all involved. Holland Beckett can guide you through the process. Please do not hesitate to contact us if you have any queries.
Where there’s a Will there’s a way
People making a Will normally think that they can do what they want with their own property. Since this is true for people during their lifetime, many are surprised to learn that their Wills can be challenged after their death if they do not meet certain requirements. This article talks about the main ways that Wills are challenged in the Courts.
Family Protection Act
One of the most common kinds of challenges to a Will is a claim under the Family Protection Act. This 1955 piece of legislation allows certain family members (particularly children) to make a claim for “maintenance”. A Court deciding this kind of claim will ask whether the person writing the Will has properly considered their moral duty to look after their family and may adjust legacies if the Court considers the Will to be unfair. For small estates, maintenance is normally ordered for children or other dependents who have special needs. This can be a medical condition or financial circumstances that mean they need a greater share of assistance than other children. In larger estates (particularly those over $500,000) the Courts may order maintenance in favour of any child who did not receive a reasonable share of the estate. Awards of between 10% and 20% of an estate are often made in favour of a Will-maker’s biological and adopted children.
This does not mean that it is impossible to make a Will that does not provide for all children. Sometimes a child will have acted in such a bad way toward their parent that they are “disentitled” from receiving any gift, however, the standard for this is very high and needs to be properly documented. Likewise, while there is no presumption that the Will-maker will share assets amongst children equally, the larger the disparity, the clearer the justification for it needs to be. It is very important when making a Will to consider how any unequal distributions are justified.
Testamentary Promises Act
A second kind of claim is found in the Testamentary Promises Act. That legislation allows potential beneficiaries to sue the estate for promises about gifts that would be left to them in a Will. These claims are significant because the applicant does not need to establish that there was a formal contract. So long as the promise was made in return for some value (even for past good works or familial affection) they may be able to receive what they say was promised to them.
Talking about your Will with family can be difficult and embarrassing especially when children are being treated differently. However, the best way to prevent a Testamentary Promises Act claim is to be clear with the family as to what they are likely to receive under the Will and to explain the reasons for these decisions. When circumstances change, sometimes promises that have been made will also need to change and this should be discussed openly.
Undue Influence
A final kind of claim that can be made against a Will is based on a direct attack on the Will itself. Where the person writing a Will has been influenced by a family member (such as a child who is involved in their care) this can lead to a Will being disregarded. Like cases where the Will-maker did not have the legal capacity to write a Will, cases where a person has been unfairly influenced by a person can mean that a Court treats a Will as not representing the Will-maker’s intentions. The Court may look to earlier Wills or make adjustments to ensure that the Will-maker’s true intentions are recognised. Where a Will is made by a person in poor health or with the assistance of a very close family member, the chances of this kind of claim increase. It is very important in these circumstances that the Will-making process is property documented and a lawyer should be engaged to give independent advice to the Will-maker. This kind of claim is unique because it is about protecting the Will-maker and reflecting their true intention. However, it can also be open to abuse.
Conclusion
Making a Will is a very important decision and Will-makers should be able to expect that their wishes are carried out. For this reason, it is important that you obtain good legal advice when writing your Will. It is also a good opportunity to talk with family about your wishes and expectations for once you have passed on, so that you know your desires will be respected.
Holland Beckett Law’s team are qualified to give advice on ensuring that your Will is safe and can also assist you with resources and support to allow you to have these difficult conversation with family. Our team of experienced lawyers are more than happy to discuss any of these matters with you further.
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Upcoming Changes in Trust Law
Trusts are a firmly established mechanism for protecting and managing assets in New Zealand. The upcoming changes in trust law are long overdue. However, such changes are also sure to call into question the country’s fixation with family trusts.
The Trusts Bill (“the Bill”) was introduced on 1 August 2017, following multiple reviews conducted by the Law Commission, which branded the Trustee Act 1956 (“the Act”) as out-dated and inaccessible. The Bill is to replace this Act and also the Perpetuities Act 1964. It is intended to make trust law more manageable by clarifying the key features of a trust, outlining trustees\' powers and obligations and streamlining administration processes.
The Bill outlines 5 mandatory trustee duties which cannot be negated by the terms of a trust. Trustees will have the duty to know and act in accordance with the terms of the trust, act honestly and in good faith, act for the benefit of beneficiaries or to further the purpose of the trust, and to exercise their powers for proper use.
The Bill also establishes 10 default trustee duties which must be performed by a trustee unless modified or excluded by the terms of the trust. These default duties largely reflect the current law. Both classes of duties will provide trustees with a clear understanding of their role and aid in beneficiaries holding trustees accountable for their actions, omissions and decisions.
Trustees will have to come to terms with disclosure requirements in favour of beneficiaries; a courtesy many beneficiaries are not afforded today. Part 3 of the Bill incorporates the presumption that basic information in relation to the trust’s affairs must be provided to beneficiaries. The provisions specify core documents which must be kept and for how long and the factors to be considered when determining what information should be shared or withheld.
Part 4 of the Bill contains provisions concerning trustees\' powers and indemnities. Trustees\' powers are currently minimal and scattered throughout the Act. The powers under the Bill are clear and flexible; providing trustees with more discretion in managing, investing and distributing trust property.
In some aspects, the Bill endeavours to make trust administration easier and inexpensive. For example, costs are to be minimised through no longer having to apply to the court for straightforward or contested changes of trustee appointments. The High Court will still have jurisdiction to review a trustee’s act, omission or decision, extend a trustee’s powers and give orders. However, alternative dispute resolution is encouraged throughout the Bill.
Whilst the Bill will undoubtedly modernise a considerably out of date piece of legislation, the focus on trustees\' mandatory and default duties, together with the new beneficiary disclosure requirements, will impose greater compliance obligations on trustees. The additional costs of compliance may cause some to question if the administrative hassle begins to outweigh the actual benefit of keeping or forming a family trust in certain circumstances.
The Bill has yet to have its first reading, so it is crucial that settlors and trustees of existing trusts continue to be aware of the proposed changes outlined above in anticipation of the changes coming into force.
Please do not hesitate to contact us if you have any queries.
This article was written for First Mortgage Trust.
Securing Residential Care Subsidies
First Mortgage Trust – Securing Residential Care Subsidies
Are you approaching, or have you already reached or even surpassed 65 years and are you thinking you may require long-term residential care? Did you know you could be entitled to a residential care subsidy? Whether you are or not will depend (among other considerations) on the value of your personal assets, and we have some tips and tricks for the young (at heart) players.
Requirement For Residential Care Subsidy
Work and Income carry out a \"financial means assessment\" to decide whether or not you are in a position to pay for your care yourself.
In a nutshell, you may qualify for residential care subsidy if you are either:
A single person in care, or you and your partner are in care, and have less than $219,889 in assets, including the value of your home and car; or
A person in care who has a partner not in care, and have combined total assets that value up to less than:
$219,889, including the value of your home and car, or
$120,416, not including the value of your home (if your partner is still living in it) and car.
Note these thresholds are reassessed annually on 1 July based on the Consumer Price Index. This makes it extremely difficult to forecast future thresholds.
Tip: “assets” do not include household furniture and personal belongings such as clothing and jewellery.
Now for the trick– you can reduce the value of your assets.
Reducing the Value of Your Assets
Gifting
You can gift assets to, say, family, friends, charity – but only up to a point.
The current policy allows gifting to be made up to:
$6,000 in total per year in the five years prior to going into residential care; and
$27,000 in total per year outside of that five year period.
Tip: gifts above these limits may be classed “deprivation of assets” and will be included or added back when assessing your entitlement for a residential care subsidy.
Double Tip (for couples): the gifting limits apply between you and your partner, even if only one of you is going into care. So, if you both individually gift $27,000, the first gift will still be considered a gift from you both and the second gift will be considered an asset.
Setting up a Trust
Your Lawyer can set up a Trust for you to transfer and gift your assets in to. Once in Trust, these are generally not taken into account when assessing your personal assets.
This is particularly beneficial when it comes to appreciating assets, such as your home. While in your own name, any increase in value will increase your personal assets. By transferring appreciating assets to your Trust, the value of those assets become locked in from the time of transfer. Any continued increase in value accrues for the benefit of your Trust.
Tip: although gift duty no longer applies (meaning you can gift large amounts to your Trust in a single gift), you still need to take care not to exceed the gifting limit of $27,000 per year (or $13,500 each for couples).
Setting up a Funeral Fund
You can arrange a prepaid funeral expense of up to $10,000 each. These funds need to be held in a recognised funeral plan.
Tip: you may be tempted instead to lend funds to, say, your children to reduce the impact on your assets. Beware – Work and Income will see the loan as an asset and include it when assessing your entitlement for a residential care subsidy.
Which is the Best Option?
The best approach is to get legal advice tailored to your (and your partner’s) circumstances and goals. The sooner the better as the limits on gifting may mean that you require a long-term plan.
Tip: if you think you may be needing care within the next five years, you should consider reducing any gifting to $6,000 per year ($3,000 each for a couple) in anticipation.
Other Considerations
If you do meet the asset threshold, Work and Income will also complete an income assessment. Any income that you, or your partner, are able to receive will be used to determine the amount you contribute towards the cost of your care.
Tip: Income includes NZ superannuation, veteran’s pension or any other benefit, contributions from relatives, investments and income or payments from a trust or estate.
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