Trusts and Professional Trustee
Trust Law and New Obligations
There is an imminent legislative overhaul regarding trusts, taking effect from 31 January 2021, when the Trusts Act 2019 comes into force.
The new act modernises and replaces aspects of the old legislation and is most the significant overhaul since the Trustee Act was originally enacted in 1956.
Under the new legislation, Trustee duties are now clearly defined and include:
- Being familiar and acting in accordance with the terms of the Trust
- Acting honestly and in good faith
- Dealing with the trust property and protecting the best interests of beneficiaries.
- Trustees have an implied duty of care (unless stated otherwise in a Trust Deed) to invest prudently and to not act in their own self-interest when making decisions.
- Hold relevant information including core trust documents (Deeds, variations, gifting documents, resolutions and minutes etc.)
- Provide appropriate trust information to beneficiaries
While several of the requirements may seem quite reasonable and straight forward, they have not been written explicitly in law before. The changes will require a far greater emphasis from Trustees on maintaining appropriate records and conducting themselves with integrity and impartiality.
Unwritten but some implications that have arisen that can cause complications to include interest-free lending to beneficiaries, having beneficiaries treated as settlors based on previous money flows and management of assets.
It is vital that all trustees are aware and have a clear understanding of the changes and their obligations by 31 January 2021.
MDA Trust Healthcheck Service
In light of looming new trust legislation, now is the time to review your trust to ensure record-keeping and tax obligations are in order and your trust is providing the tax efficiency and protection it was initially intended to provide.
It is very common for many trusts with little activity, particularly those holding limited or passive investments such as a family home, to lie a bit neglected and unnoticed in the background. Without taxable activity, many argue there is little benefit to maintaining financial statements or preparing annual resolutions. Some such trusts have operated this way for decades. With the new rules imminent, these practices will need to change in the future. Failing to maintain appropriate financial statements and resolutions could breach the information and duty of care requirements of Trustees, which risks falling foul of the new Trust Act.
Even in a practical sense, if financial statements have not been regularly prepared, trust resolutions not maintained and an IRD number not applied for this can lead to delays and costly administrative time when it comes time to sell a property, re-finance, restructure the trust or begin the process of winding up the trust.
With the above in mind, we felt it important to simplify the increasingly complex world of trusts by launching the Trust Healthcheck service with the objectives to not only check compliance but also the entity is fit for purpose and operating smoothly well into the future.
Trust Healthcheck Review Scope Of Works
Our review involves the following;
1. Checking we have trust deeds on file and any associated Deed of Amendments.
2. Reviewing the Trust Deed to see if more recent legal changes could be used to improve the Deed, and to advise accordingly. A relevant and common example if that one of the issues with older Trust Deeds is that they typically have clauses that require any beneficiary distributions to be made within 6 months of Balance Date (usually 30 September). After such time, beneficiary distributions are not allowable, and trust income must be accumulated in the trust fund. Often, distributions are only documented when financial statements are prepared, so if this occurs after 1 October, a technical breach of the Trust Deed has occurred if distributions are made. This could be very problematic come 30 January 2021! We can suggest a Deed of Variation to alleviate this issue, to bring the Trust into line with more modern legislation, which no longer has a 6-month requirement and to ensure that distributions remain fully compliant.
3. Check to see if Deed clauses are fit-for-purpose and relevant to recent family circumstances.
4. Checking and reviewing all resolutions, including gifting (if applicable).
5. Reviewing financial statements on hand. If none, we will consult with you and begin the process of statements prepared.
6. Check whether an IRD number is on file and apply for one if not done so. All properties being purchased or sold in NZ must have a NZ IRD number attached to the transaction.
7. Reviewing assets on hand and advising where appropriate for any new opportunities that could better grow and protect the trust’s investments.
The cost to complete the above body of work is $600 + GST.
If you self-manage your trust affairs or are with another lawyer or accountant or another adviser, please contact me Martin Thomas for an obligation free discussion. You can ring me toll-free from anywhere in New Zealand on 0508 T AGENT (824 368) or 09 294 6262.
independent ProFESSIONAL TRUSTEE FOR DISCRETIONARY FAMILY TRUSTS
Services to ENSURE compliance through professional administration.
A key role of a Professional Trustee is to assist other Trustees in administering a Family Trust. The overall goal is to assist co-Trustees in protecting the assets of the Trust for the Beneficiaries.
Under terms of engagement we can help with and complete the following:
• Prepare and file Family Trust financial accounts;
• Carry out gifting;
• Review loan documentation;
• Complete compliance obligations regarding Annual Trustee meetings including minuting, file notes and resolutions recording Trust discussions and decisions.
AS A professional trustee HOW CAN WE help?
Administration aside, Professional Trustees are highly regarded by the Judiciary and recent case law that came before the courts said their presence did make the finding of a Sham Trust that much harder.
A Sham Trust is where it is proven that the Trust was structured or utilised for an illegitimate reason, or it has not been set up correctly or administered incorrectly.
Additionally, the presence of a Professional Trustee gives the Trust independence by not being a Beneficiary of the Trust.
Our focus is Property Investment and we have over 10 years of experience with a number of clients. Our Professional Trustee Company has a rock-solid reputation for helping make sensible and objective decisions to ensure our clients assets are protected and tax minimised for the Beneficiaries of our clients Family Trusts.
WHY IS A FAMILY TRUST IMPORTANT IN TIMES OF UNCERTAINTY?
Think of a Family Trust as being akin to an insurance policy. In times of uncertainty, trusts can save the family home and shield money from business failure, divorce, aged care and unqualified excessive spending.
It is important to have your Trust drafted properly by lawyers and accountants who understand income tax and estate law as well as your goals and circumstances. People set up a Family Trust for a number of reasons that include;
• Asset protection- Safeguarding your assets from a financial disaster such as unexpected business debts or reducing the chance of relationship property claims by future partners protection against professional liability claims.
• Asset and means testing- Preparing for the time you or your spouse might require aged care by planning for Asset or income-tested means testing.
•Inheritance Protection- Ensures assets acquired across a lifetime are protected for the future generations of your family (estate planning) and not put at risk from subsequent matrimonial and business dealings.
• Tax Benefits- There are ways a well structured trust can be used to create tax benefits such as income splitting and paying beneficiaries entitlements at their lower tax rates.
• Maintaining confidentiality of your financial circumstances.
We utilise internal resources and where necessary external law firms to set up and support our clients needs. With the pace of change in the legislative framework. what worked twenty, ten or two years ago may not be working as intended now.
Finally we recommend that you do not leave your lawyer or accountant in charge of your Trust fund, running your estate or with the power to appoint and remove trustees.
We have seen many such arrangements as a 'money train' for lawyers and accountants to overcharge for 'management' or are slow or do not perform duties. We believe its important that final beneficiaries don't get caught in the 'money train' trap and are able to change lawyer and accountant to better value for money trust management.