The upside (and downside) of downsizing
New Zealand’s ageing population has created a boom for retirement villages, with record numbers being developed. For many looking to retire or slow down, retirement village living is attractive – and it’s not hard to see why. A new apartment or cottage in a secure, well-maintained environment, offering a lock-up-and-leave lifestyle, and providing resort-like facilities such as cafes, gyms, pools, bowling greens, libraries and men’s sheds can be very appealing.
Many clients tell us how happy they are to have made the move, some even say they wish they had done it sooner, but retirement village living is not for everyone. It’s important to think carefully about what this move means for you – both financially, and in terms of your current and future needs.
It has been estimated that there are between 300,000-500,000 trusts in this country. Trusts have been established for many different reasons, including estate planning, creditor protection, to ensure access to rest home subsidies, tax benefits or for protection from relationship property claims.
When the reason for a having a trust is no longer valid (there’s more on this on our article Do I still need a trust? here), it is important to bring it to an end in the most appropriate way bearing in mind the powers in the trust deed and the needs of all the beneficiaries.
This article explores the two most common ways that trusts can be brought to an end – bringing forward the date of distribution (the trust’s expiry date) and distributing all the trust assets to beneficiaries.
It’s good practice to review its purpose
If you have a family trust set up a number of years ago, it’s good practice to review it to ensure it is still ‘fit for purpose’. Leading on from that is the question that is often asked of us, “Should I bring my trust to an end?”
Trusts are still very useful arrangements, and there is usually a good reason why you established a trust in the first place. If that reason no longer exists, however, then it may be sensible to think about alternative arrangements.
When you hear the word ‘inheritance’, what is your first thought? Is it positive or negative? Do you think about what you could receive from your parents, or what you might pass on to your children? Answers will vary, but generally the term ‘inheritance’ carries positive connotations. The Oxford Dictionary defines an ‘inheritance’ as ‘a thing that is inherited’. More helpfully, Wikipedia defines it as ‘the practice of passing on property, titles, debts, rights, and obligations upon the death of an individual’.
For this article, however, we’re focussing on ‘debts’ rather than actual things. What happens when your parents die broke? Can you inherit a debt?
What does it mean to have ‘mental capacity’ when it comes to signing a will or an important legal document? This has recently become a hot topic, with new case law shining some much-needed light on the subject. It’s also something that families need to be aware of as their loved ones age.
Mental capacity, as a concept, seems straightforward and self-explanatory. Common sense would suggest that if there is even a slight question as to a will-maker’s capacity, an assessment should be carried out to ensure they fully understand the provisions in their will, as well as the possible consequences that could arise from them.
It can be an unpleasant surprise
Trustees and executors are not always entitled to reimbursement for their litigation costs.
While most trustees and executors will assume that costs incurred in the course of their trustee or executorship will be paid from the estate or trust, the recent decision in Courteney v Pratley is an illustration of the perils that trustees or executors can face when they go to court.
Trustees and executors are in charge of the property of others. They are not expected to pay for their own expenses in doing so and, as such, are usually entitled to reimbursement of the costs they incur.
As parents age, their children often find they need to take an increasing role in looking after them. Unpalatable as it seems, it’s important to think about the legal difficulties that can arise where one member of the family has assumed responsibility.
If questions are asked some time later, it may not be enough to say “but that is what mum/dad wanted”. We also explain the restrictions on when an attorney (the person who holds the Enduring Power of Attorney) can benefit from the decisions they make. We touch on the issues where a parent later needs to go into care.
Often elderly people do not want to live alone. Buying a unit in a retirement village, or some other form of sheltered accommodation, may be a good option. Others may find buying a unit is not financially possible or desirable. Some prefer to stay with one of the family. In that case, an increasing burden may be thrown on the family member who is providing care. These arrangements should be recorded carefully and it’s important to get legal advice.
Can it be fair for everyone?
Making sure everyone you care about gets a fair share of your property after you die is an issue most of us grapple with. This may also have additional complications when you have a blended family.
It’s not always as easy as just writing your Will and specifying who gets what. There are several statutes that give family members and/or your new partner’s family, a right to contest your Will. The two main statutes are the Family Protection Act 1955 (FPA) and the Property (Relationships) Act 1976 (PRA).
Leaving it all to your partner?
A common way of structuring your affairs is to leave everything to your partner or spouse, knowing they will provide for your children as well as their own in their Will. These are often called ‘mirror Wills’. Unfortunately, this structure doesn’t always satisfy all the children involved, as we have seen in several recent court cases. You also run the risk of your partner or spouse changing their Will at a later date after you have died.
Know when to walk away
When Barack Obama was US president, he made an historic visit to Africa. One of the messages he repeated was that, under the US Constitution, he could only be president for eight years and this time limit is generally a good thing.
Obama was, of course, making an indirect reference to the tendency in some African countries for leaders to have themselves declared to be president for life. This, in Obama’s view, was not only unhealthy but also an excessive burden for one person to bear for too long.
Something similar could be said of some trustees. No one should want to be trustee for life. It’s useful for trustees to think about a succession plan: which trustees should we expect to retire or be replaced and who are the likely replacement trustees? Sometimes, likely future trustees are asked to sit in on trustee meetings to understand how the trust runs. (We have an article about the process for retiring trustees here.)
There’s a process that should avoid any problems down the line
Many people agree to act as trustees of trusts set up by friends or relatives on the basis that they wish to help out or assist their friend or relative in some way. Eventually it comes time to retire as trustee for reasons such as age, the winding up of the trust or other changes of circumstance.
Retiring as a trustee is not as simple as it sounds and there are a number of potential liabilities that need to be covered off.