Scenario 1: Bill & Jenny

Instead of enjoying the early years of their retirement Bill and Jenny are continually worried about how their youngest son, 35-year old Peter, will cope after their death. Will he have a house he can call “home” and the level of practical care and emotional support that he needs? Peter suffers from a mental illness.

Scenario 2: Grandad

Grandad always wanted his beach bach up north to be kept in the whanau so that all the mokopuna and their kids could enjoy what he had as child. Grandad has now died. It seems like his dream will die with him since none of his children can agree to retain the property and it will inevitably be sold.

Scenario 3: Howard & Connie

Howard and Connie’s only son, Craig, is having a few financial problems. His business is owed a lot of money, debts which may never be paid. Now Craig is struggling to pay his own bills and his relationship at home is starting to look pretty rocky too. How can Howard and Connie make sure that it is Craig who ultimately benefits from their estate and not his creditors… or anyone else?

Scenario 4: Ben & Kate

Ben and Kate are in their mid 30’s and already on to their third rental property. The first two gave them some debt-servicing worries early on, but in the last few years the properties have doubled in value. Now they are concerned that their whole family, rather than the whole nation, benefits from all their hard work, since, by the time they retire, who knows what kind of tax will exist to meet the needs of an aging population?

One Solution

By transferring all major assets to a family trust (and completing the associated gifting programme) our people in all four scenarios could each have had the peace of mind, which so eluded them. After all, there is no longer a need to concern yourself with tomorrow, when you know all that is needed has been done today!

A family trust may not be a cure–all for every threat to your family’s long-term financial security but it is the single most effective means to protect your assets from the plethora of potential predators we all face in an increasingly complicated world.

What is a trust?

A trust is a set of equitable obligations, created by one or more persons (“the settlors”), which bind another person or group of persons (“the trustees”) to deal with certain property (“ the trust property”) for the benefit of others (“the beneficiaries”). In a modern Family Trust a number of the people fulfilling these three roles typically overlap. In broad terms, a Deed of Trust, is a document dividing the powers, responsibilities and benefits associated with trust property amongst these three groups as follows:

The benefits associated with trust property are exclusively for the beneficiaries;
Legal title, along with all responsibilities for trust property on behalf of the beneficiaries, are entrusted to the trustees;
Important powers, such as the ability to add or remove beneficiaries and hire or fire trustees, are generally retained by the settlors.

How does a Family Trust work?

Here are some of the steps involved:

The parties create the family trust by signing a Deed of Trust, prepared especially for them by their lawyer.
The settlors transfer assets to the Trust at their current market value.
The trustees sign a Deed of Acknowledgement of Debt in favour of the settlors for the total value of assets transferred to the Trust.
Each individual settlor writes off the sum of $27,000 from the debt owed by the Trust to them by executing a Deed of Forgiveness of Debt and filing Gift Statements with IRD.
A composite package of other legal documentation is completed including a Memorandum of Wishes, Trustees Resolutions and new Wills.

When should I set up a Family Trust?

If a trust is right for you, then probably sooner than you think! There are two main drawbacks of delay:

For property appreciating in value, such as family homes in most parts of New Zealand, the longer you leave it before assets are transferred to your trust, the higher the value of those assets and the greater the time required to complete your gifting programme. Remember, the goal of your asset protection plan is for your family trust to be rich and for you to be poor.

The older you are before you commence your gifting programme, the less chance you will have to complete it and achieve the goal of your asset protection plan. The value of assets remaining in your name will continue to be vulnerable to the types of risk you are trying to prevent for the sake of your family and loved ones.

How do I get started?

Forming a family trust is just one step in a comprehensive, personalised asset protection plan. For the lay person this is not the sort of plan that you can come up with on your own. It involves forming a range of legal documents, which must all work together, and there is just no substitute for professional legal advice on a confidential, one-on-one basis. Remember, the whole idea is to minimise risk, not add to it!

At the mobile lawyer we offer an initial 40-minute planning consultation, valued at $120.00, on a complimentary basis. To obtain your own personalised plan by taking advantage of this service please click here, fill out the form below, or call us toll free on 0800 LAW NOW (0800 529 669) to register your enquiry. If our advice to you, at the conclusion of our meeting, is not to proceed with a family trust, you will at least have the assurance that you have sought the advice that you need. And you will still be in a position to implement any other steps we may recommend to you.

 

Author: Ross Aiken BA, LL.B
For more information contact: The Mobile Lawyer
Posted: 30 September 2008