It is estimated that there are upward of 400,000 family trusts in New Zealand and the number continues to rise. Around one in six homes are owned by a trust and some 20 per cent of cash and other assets, being some $90 billion or more, are also owned by a trust. We find that individuals and families have a limited number of reasons for having formed their trusts often being simply “asset protection” prior to entering a relationship, or the family home from creditors. Retirees have also asked whether settling the family home on a trust will assist them in obtaining a residential care subsidy from the Ministry of Social Development (MSD).
Recent experiences have led me to believe there is a broadly held view that the gifting of the equity in a family home over time to a trust, being the major asset of most retirees, ensures that the MSD “asset threshold” is not exceeded, thus enabling a successful application. While gift duty was abolished in 2011, allowing the completion of gifting programmes without financial ramifications, MSD is focused on what is termed “excessive gifting” and each application requires full details of all assets, incomes, transfers and settlements of property on trusts or to family members, and all gifting no matter how long ago that occurred. They investigate thoroughly and do not rely on simply the application details and declarations.
We also have clients who have had trusts for years, but have continued to use the trust assets with little regard for the terms of the trust or its purpose. Their documents live in the bottom drawer gathering dust and if there is an independent trustee, they may not have any up-to-date details of the trust, its assets or had any input into trustee decisions.
This casual disregard for the trustee’s duties, while common, could well become an issue for the party seeking protection for the trust’s assets in the event of dispute as to asset ownership. The Law
Commission is presently working through the details of a new Trusts Act that will, amongst many changes, codify the mandatory duties of trustees and also provide substantial default trustee duties unless your trust deed provides otherwise.
People’s lives and circumstances change and so does the law. Our only constant is change. We therefore recommend that you have your trust reviewed to ensure it meets its intended purpose(s). A review may well result in a recommendation for the establishment of a new trust, the resettlement or sale of assets to this new trust, and could also require tax advice.
This recommendation is first and foremost concerned with reducing or eliminating risk, so it is best to regularly consult your legal and tax advisors to ensure your trust is up to date and meets your and your family’s needs.
By John Waugh, Devonport Law – Matakana
