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Seminar Summary: How Robust is Your Trust

Posted 4 months ago in BUSINESS DEVELOPMENT, BUSINESS PLANNING, EVENTS

With the new Trust Act 2019 in force since January 2021, now is the time to consider whether the reasons you set up your Trust are still relevant and check the benefits outweigh the costs of compliance.

Following is a short overview of our recent webinar, ‘How Robust is Your Trust’.  For further information or to book a review of your Trust, please contact our Wellington or Hawkes Bay office.

Reviewing Your Trust

Most likely, your Trust was set up to protect assets, reduce risk exposure, provide tax savings and to provide an enduring benefit to yourselves and other family members.

If you undertake a Trust Review with us, we’ll help you determine whether the Trustees are still the right people, the beneficiary classes are still correct, and the appointers are still able and willing to act and are comfortable with the responsibilities that they are assigned. 

Being able and willing to act is even more important given the requirements of the Trusts Act 2019 which came into force in January 2021.

We must also think about what happens if one of the Trustees or Appointers dies.  Who will the powers be transferred to? These are the technical issues you need to be thinking about, and this can all be done as part of a Trust Review.

Trust Deed Issues

There are some common issues with Trust Deeds which we often pick up during a Trust Review including:

  • Flexibility
  • Resettlement
  • Power to add beneficiaries
  • Beneficiary classes no wide enough
  • Power to appoint Trustees

It’s important that the beneficiaries are clearly identifiable.  There are generally two classes of beneficiary: discretionary and final.  Discretionary beneficiaries can only benefit from the Trust at the discretion of the Trustees.  A final beneficiary will benefit upon the wind up of the Trust.

On a similar vein, large balances owed to Trusts can build up in trading companies.  This happens where profits are credited as dividends to Trusts but not paid out in cash.  In this instance, it’s a great idea to have security in place so that, if the company gets into financial difficulty, the Trust is a secured creditor with the ability to be repaid before unsecured creditors.

Lastly, especially in the current economic climate, it’s important to review the investments the Trust has made to date.  It may be that the strategies adopted in the past are not appropriate now or that you have other investments that may sit better either in the Trust or other entities.

All of these issues need to be considered as they relate to your personal situation.

The Legislation Changes

On top of any issues needing attention in your Trust documentation, there’s also the new legislation to consider:

  • Gift duty abolished from 1st October 2011
  • Trusts Act 2019 replaces Trust Administration Act 1956
  • Will have an impact on the estimated 300,000 to 500,000 Trusts in New Zealand
  • Effective Date January 2021

Other things to think about in terms of the validity of the Trust and the need for it include:

  1. Your Will – Have you reviewed it recently?  It might be out of date and therefore no longer consistent with your Trust Deed. For example, you may have specified in your Trust Deed that the power to add and remove beneficiaries is transferred from you to the person specified in your Will, but your Will might not actually specify who this is.  Or, you may not have specified in your Will what you want to happen to debts owed to you by your Trust -perhaps you want to forgive all debt or maybe it will be advantageous to transfer the debt to your spouse.
  2. Personal Assets – Do you have personal assets outside of the Trust that should be moved into the Trust?  This is particularly important if you’re in business or have acquired significant assets since the formation of the Trust.
  3. Business Structures – Have you got the most appropriate structure for asset protection and tax planning benefits?  For example, if you are considering winding up your Trust, do you need a different entity such as a company to hold any of the assets?

Your Next Steps

These are all issues we can discuss as part of a Trust Review to make sure your Trust mitigates as much risk as possible.

If you’re not sure if you need a full Trust Review, book in for a quick phone or Zoom call to help you identify potential areas of concern and determine the actions you must take to ensure your Trust is compliant.

Please contact us at our Wellington or Hawkes Bay office to find out more or book in your Trust Review meeting.

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