Edmonds Judd

trusts

But you’re already the trustee of a trust

The rules around the use of KiwiSaver have evolved over recent years as banks and other financial institutions have developed their understanding of the KiwiSaver regime.

KiwiSaver members may use their funds to help buy their first home; this is straightforward. What happens, however, if you want to buy your first home and you are already a trustee of a trust that owns property?

Initially, you could only access your KiwiSaver funds to buy your first home in your personal name; using a trust as a vehicle to purchase was not allowed. Now, however, the situation is more nuanced. An increasing number of lenders allow KiwiSaver members to make a withdrawal to finance the purchase of a first home, even where trusts are involved.

Let’s look at three scenarios to illustrate how this can work.

  1. You are a trustee of your friend’s trust, but not a beneficiary; as a trustee, your name is on the title to your friend’s home
  2. You are a trustee and a beneficiary of your parents’ trust; your name is on the title to their home, and
  3. You are a trustee and a beneficiary of a trust that has just been settled and so far only holds the initial $100 settlement; the trust does not hold property.

Trustee but not beneficiary

In scenario #1, the general rule is that if you are currently registered on the title to a property or land you will not qualify for a KiwiSaver first home withdrawal. The Financial Services Council of New Zealand, however, suggests that you will be eligible if you are registered as an owner of ‘an estate in land as a trustee who is not a beneficiary under the relevant trust’, because you haven’t previously held an estate in land (as you didn’t have a beneficial interest)[1].

Your argument will be even stronger where the trust of which you are a trustee has sold the property and you can establish that you received no financial gain from the sale.

Trustee and beneficiary

In scenario #2 where you are a trustee and a beneficiary of a trust which already owns property, it is necessary to establish that you have ‘no reasonable expectation that you will be entitled to occupy the land as your principal place of residence before the death of the occupier or of their survivor.’[2]

It may be difficult to establish that you have no reasonable expectation of being entitled to occupy the land as your principal place of residence if, for example, you are:

  • 18 years old or over
  • A trustee of the trust
  • Named on the title to the trust property, and
  • Occupying the home with your parents under a resolution that says ‘the settlors and their children aged under 20 years may occupy the property on the basis that they pay the rates, insurance and all outgoings usually payable from income.’

However, you could argue that once you turned 20 you would no longer have a reasonable expectation until after the death of your parents.

If there is no resolution in place, however, or a resolution that only authorises the settlors to occupy the home, then you may be able to argue that you have no reasonable expectation of being entitled to occupy the land as your principal place of residence (that is, you are there at the whim of your parents/the trustees and they can ask you to leave at any time).

Trustee and beneficiary of new trust

In scenario #3 where the trust has not purchased any property, some lenders, such as ASB, now allow the withdrawal of KiwiSaver funds to purchase your first home through a trust. The provisos are that the property being purchased is your first home, you are both a trustee and beneficiary of the trust, and you intend to live in the property as your principal place of residence.

To be eligible, your name (as the KiwiSaver member applying for a first home withdrawal) must be on the sale and purchase agreement or on a deed of nomination. This is good news for first home buyers who have good reason to want to hold assets in a trust, though care must be taken to ensure that your KiwiSaver provider will agree you are effectively in the same position as a first home buyer: one way to ensure that is to apply for approval prior to finding a property.

Being a trustee of a property-owning trust can create unwitting complications if you want to buy your first home using KiwiSaver funds. If you need some help in steering your way through the process, please feel free to get in touch.

[1] Financial Services Council of New Zealand.

[2] Clause 8(5), Schedule 1, KiwiSaver Act 2006.


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 

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

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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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.

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Relationship property claims

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[1] reminds us that transferring assets to trust will generally be ineffective where:

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Trustees’ decisions

Decision-making can be affected by bias

In a recent case[1], trustees’ decision-making came under scrutiny from the High Court.

Lara Unkovich was a young teenager when her grandfather died in 2016, leaving her a share of his estate. Her share was worth around $65,000. Under his will Lara would not receive the funds until she was 21 years old. The trustees, however, had the power to make payments towards her ‘maintenance, education, advancement or benefit.’ The trustees were her aunt Margaret and a lawyer.

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Best to sign again after lockdown to avoid later complications

During the Covid lockdown, special rules applied to the signing of some legal documents. Obviously it was, and is, not possible to have your signature witnessed by someone outside your bubble in Levels 3 and 4. So the law allowed signing over audio-visual link (AVL) and other similar arrangements. While these documents will remain valid in the future, it may be wise to have wills and enduring powers of attorney (EPAs) signed out of lockdown to avoid any time-consuming queries later on.

Many legal documents need to be signed in a particular way or before a particular person. For example, some documents such as affidavits must be signed in front of a JP or lawyer. As this was, and is, not possible during lockdown, special rules were put in place to enable people to sign documents such as wills, EPAs, affidavits and so on.

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