Edmonds Judd

trust law

New edition of To Trust or Not to Trust

Estate, House, Relationships
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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.

An independent trustee 

House, Relationships
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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[1] 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[2] 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.

Clayton case

The Webb decision followed a New Zealand Supreme Court 2016 decision (Clayton case[3]). 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.

[1] Webb v Webb [2020] UKPC 22.

[2] The Privy Council in London is the body which hears appeals from Commonwealth countries that are too small to have their own top court.

[3] Clayton v Clayton [Vaughan Road Property Trust] [2016] 1 NZLR 551 (SC); [2016] NZSC 29.

Trustees’ expenses

Estate, Latest news, Retirement
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Should be reimbursed, but no need for extravagance

When trustees incur expenses, they are not expected to be out of pocket in carrying out their responsibilities. Trustees are entitled to use trust money or to get a refund from the trust fund if they incur expenses in carrying out their duties. Trustees’ expenses, however, must be fair and reasonable. A recent case shows why it is also important to be sure that you can trust your trustee not to take advantage of the right to claim expenses.

Carrying out a trustee’s obligations and responsibilities can take up much time and some expenses can be incurred in doing this. Trustees are not usually entitled to charge a fee for their time, unless the trust deed or will allows them to do this. The trustees are, however, at least entitled to have their expenses met from the trust fund, provided the expenses are fair and reasonable. If the trustee has to pay for anything personally, the trustee is entitled to be reimbursed.

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Charities in New Zealand

Estate, Latest news, Relationships
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Charities play an important role in our society to help the disadvantaged, support specific causes or to advance knowledge. In New Zealand we have more than 27,000 registered
charities, with 230,000+ volunteers and 180,000 paid staff [1]. Many of these charities are
structured as trusts which can be incorporated and run as a trust board by the trustees.
Others are structured as incorporated societies or companies, or as unincorporated bodies. These types of charities are run by a board with specific obligations and responsibilities.

The Charities Act 2005 (which is currently under review) regulates the Charities Register and sets out the statutory rules relating to registered charities. Those rules include a re-quirement for registered charities to report, on an annual basis, to Charities Services (a di-vision of the Department of Internal Affairs).

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Trusts Act 2019

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Comes into force early 2021

The Trusts Act 2019 will come into effect on 30 January 2021. Much of the Act updates or restates existing law.  However, there are a number of changes about which trustees and people with trusts should be aware.

Trustees’ duties

The Act contains ‘mandatory’ and ‘default’ duties for trustees. Mandatory duties cannot be modified or excluded by the trust deed so all trustees will have to observe them. Mandatory duties are: Continue reading

Trusts Act 2019

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The new Trusts Act 2019 will come into effect on 30 January 2021. Much of the Act updates or restates law that exists already, either in statute or in case law. There are, however, a number of changes about which trustees and settlors should be aware.

The Act contains ‘mandatory’ and ‘default’ duties for trustees…

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Accessing the assets of a trust

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What the future may hold for separating couples with a trust

When a marriage, civil union or de facto relationship breaks down, the couple will usually divide their property according to the Property (Relationships) Act 1976 (the PRA). However, these two people often hold property in a trust rather than personally.

The PRA has limited remedies to access property which has been put in a trust, and this can result in unfairness when a couple separates if there are no assets that they own personally.

The Law Commission has undertaken a review of the PRA and proposed that the legislation be changed to make it easier to access trust property when a couple separates.

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Trusts Bill

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Deals with practical issues

The long-awaited Trusts Bill was introduced to Parliament on 1 August 2017. The Bill is largely an update and restatement of the Trustee Act 1956 and the common law. However, it also deals with practical issues that have faced lawyers and trustees for some years. We outline some of the most important parts of the Bill.

‘Express trust’ defined

An ‘express trust’ is defined in the Bill. The definition makes it clear that trust property is separate from a trustee’s personal property, it must be administered in accordance with the trustee’s obligations in the trust deed, and that trustees will be accountable to beneficiaries for their compliance with the duties imposed on them by the trust deed and by law.

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FATCA and New Zealand Trusts

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North American Bald Eagle on American flag

Many trusts may require registration with the United States’ IRS under the FATCA regime

The US Foreign Account Tax Compliance Act (FATCA) has been in force in New Zealand since June 2014. FATCA is a complex piece of legislation established to prevent tax evasion by requiring foreign financial institutions to register and report to the IRS in relation to any accounts held on behalf of US citizens.

All New Zealand entities considered to be ‘foreign financial institutions’ under the FATCA regime should have been registered on the IRS website by 31 December 2014. Continue reading