With the new Trusts Act 2019 that came into force on 30 January 2021, we now have a new edition (the 4th) of To Trust or Not to Trust: a practical guide to family trusts.
To Trust or Not to Trust has chapters on:
- Establishing a family trust: is this for you?
- Trusts Act 2019
- Protection given by a family trust
- Transferring assets
- Decisions to be made
- Completing your estate plan
- Family trust administration
- What will a family trust cost?
This new edition lists trustees’ mandatory and default duties and obligations. It sets out the changes the Trusts Act brings to some provisions for beneficiaries, and explains that trustees who are no longer mentally competent can be more easily replaced.
If you are thinking of how you would like your assets protected, this guide is a very good starter for you to understand how a family trust works. For those of you who already have family trusts, this 4th edition provides an update on the changes the new legislation has brought.
If you would like to talk more about asset protection or your current family trust, please don’t hesitate to contact us.
Can be more important than you might think
Managing a family trust is not getting cheaper, nor is the paperwork and compliance being reduced. Trustees have legal duties, must give beneficiaries information and be accountable. It is tempting to think you can reduce costs by removing the independent trustee of your family trust. There can, unfortunately, be disadvantages.
The ‘do it yourself’ attitude
We all like to save time and money, but you do get what you pay for. Without an independent trustee, your family trust may not protect the trust’s assets as you may expect.
Cook Islands case
The Webb case arose in the Cook Islands under New Zealand law. Mr Webb set up two trusts but, after he separated from his wife, the court ruled that the trusts did not prevent her claiming her half-share (as beneficiary) of the trusts’ assets. Mr Webb had retained such power over the trust property that he could access the assets himself any time.
The court said that if Mr Webb had needed agreement from a ‘truly independent person’ such as an independent trustee, the result would have been different. In 2021, the Privy Council agreed with the New Zealand judges in the Cook Islands’ courts that Mr Webb had not really disposed of the property and Mrs Webb had a claim.
The Webb decision followed a New Zealand Supreme Court 2016 decision (Clayton case). Mr Clayton had put commercial property into a trust. The court agreed Mrs Clayton could claim half of the trust assets as relationship property. This was because, although the assets were in a trust, Mr Clayton could get the property back any time he wanted.
These cases indicate the risks of not having an independent trustee who would counter the settlors’ wishes to treat trust property as their own. Trustees must hold the trust property for all the beneficiaries, not just the person who established the trust.
Advantages of having an independent trustee
There are other advantages in having an independent trustee, particularly a professional trustee. The trustee can:
- Advise about best practice
- Remind about important things such as when to give information to beneficiaries (and when not to)
- Help trustees meet other obligations, for example, retaining trust information as required by law
- Spot things that need to be reviewed, and
- Save cost if the trustee (if that person is the trust’s lawyer) drew up the trust deed and knows the family.
Talk with your trustee now
If you have a professional trustee, we recommend you find out what they can do to help keep the trust running smoothly without undue cost.
The recent changes to trust law – the Trusts Act 2019 took effect on 30 January 2021 – have placed additional responsibilities on trustees. An experienced professional trustee can advise the most time-and-cost-efficient way to ensure your trust is compliant and effective.
 Webb v Webb  UKPC 22.
 The Privy Council in London is the body which hears appeals from Commonwealth countries that are too small to have their own top court.
 Clayton v Clayton [Vaughan Road Property Trust]  1 NZLR 551 (SC);  NZSC 29.
Input is needed from Mum and Dad
When a couple separates, there is sometimes a major dispute when parents or caregivers can’t agree on the care arrangements for their children. Communication has broken down and mediation hasn’t worked, so one parent (or both) applies to the Family Court to decide the details of the children’s care.
What does the Family Court take into account when dealing with battling parents or caregivers? Many parents say, “I want to care for my kids, but I still want the other parent involved in their lives.” Others say, “Why should I participate? The other side is going to win anyway.” The reality is that not only legally but also morally, children have a right to a relationship with both Mum and Dad.
Historically, it was common practice in the western world for the mother to stay home with the children, while the father went to work. Mum is a full-time parent — or the more ‘hands-on’ parent. So when Mum and Dad separate, the assumption is that the children stay with Mum.
Inevitably, the relationship between the children and Dad starts to fade. They’ve gone from seeing Dad every day, to visiting him in the weekends or the holidays, or sometimes not at all.
The situation becomes worse when communication between the parents breaks down. The children start to feel that they have to pick sides. These assumptions and scenarios often come up in court.
A number of people believe that the Family Court is biased towards mothers. Some have also mentioned that they don’t think they will get a say about their children’s care — because they have been violent, or they have a history of criminal activity or drug abuse.
There are cases where one parent hasn’t participated in the proceedings, apparently due to these incorrect assumptions.
The court, however, has a duty to put children at the forefront of its decisions, and this is assisted by input from both their parents or caregivers.
At a hearing, the court follows the objectives and principles of the Care of Children Act 2004.
The paramount principle is that the court must act in the welfare and best interests of a child. In order to determine that, the court looks at other principles, one of which is that children have a right to a relationship with both parents (and wider whānau). The Family Court is aware of studies and statistics confirming that children thrive more when both parents are involved (safely) in their day-to-day lives.
It is very unusual for the Family Court to make an order that doesn’t make provision for both parents to care for their children.
It is important that both parents participate so they both get a say in their children’s care. If a parent doesn’t take part in the proceedings, a decision will be made without their input. Once a final decision is made, it could be a long time before it is looked at by a court again.
If there are live Family Court proceedings about the care of your children or children in your wider family, make sure you contact our family lawyers and actively participate in the court process. It doesn’t matter if you saw your children yesterday or if you haven’t seen them in years, you are their parent and your voice matters. Otherwise, it will be your children who will be the ones missing out.
Kia kaha, kia māia, kia manawanui
(Be strong, be brave, be steadfast).
Extension of Māori Land Court jurisdiction
A significant change to the succession laws relating to Māori land  came into force on 6 February 2021 (Waitangi Day).
Te Puni Kōkiri states that the amendments to Te Ture Whenua Māori Act 1993 are intended to better support whānau to succeed to their land by:
Disclosure of trust information to beneficiaries
The Trusts Act 2019 came into force on 30 January 2021. One major topic of discussion arising from the new Act has been the provisions governing disclosure of trust information to beneficiaries.
The purpose of the new disclosure provisions is to ensure that beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees. Historically, in some trusts, disclosure of information has been very limited, and beneficiaries often do not find out they are beneficiaries, or that they are entitled to trust information, for many years. This makes it difficult for beneficiaries to know who to contact, or what kind of information to request, to ensure the trustees are doing their job properly.
Hefty consequences for getting it wrong when company was in financial distress
In September 2020, the Supreme Court released its keenly anticipated decision in the Debut Homes case. This decision illustrates the risks for directors where a company is experiencing irrecoverable financial distress.
Time for a contracting out agreement?
You have had years of saving up for the overseas experience many New Zealanders dream of — then a pandemic hits. The London job you thought you had in the bag is no longer an option, and you and your partner are faced with extending the lease on your flat here — that you were eagerly awaiting to escape. What do you do now?
In 2020, many couples have found themselves cashing out what would have been their big OE savings stash and using it for a house deposit. Others have leapt at the banks’ lower interest rates to extend their borrowing and have bought properties that were unattainable only a year ago. All over the country, and particularly in Auckland, the property market is flooded with returning expats who are establishing roots back here — often earlier than anticipated.
Allowing for Covid-related settlement delays
When New Zealand headed into Covid Level 4 in March, real estate transactions stalled because of difficulties completing essential elements of settlement, such as the legal paperwork, giving of vacant possession and the inability of moving companies to access the property. In response, a number of buyers and sellers adjusted their agreements to delay settlement until alert levels decreased.
‘Estate’, ‘ownership with others’ and ‘interests’
Before you buy a property it is important that you understand exactly what you are purchasing. Your property title records (or should record) all of the interests that affect your title. That way, you are fully informed about any rights or obligations you may have – before you buy.
Sign a contracting out agreement
When entering a second or subsequent relationship, it is common to want to keep assets safe from relationship property claims. An effective way to do this can be by transferring assets to a trust. Care needs to be taken, however, to ensure you do this within the law.
A recent case reminds us that transferring assets to trust will generally be ineffective where: