Public Trust advised to drop ? finalise??Family Trust as they are no longer effective

[wawawewe]

My husband and I set up a Family Trust in about 2006 - made the yearly gifting and paid the fees. (the ra ra and hype sounded convincing and a renowed adviser recommended it at the time) In retrospect its probably been a waste of money as we didn't really need it)

With the Govt changes approx 4 years ago where you had the choice of either gifting the lot - lump sum - or continuing gifting small amounts each year - we just put it on back burner and did nothing.

A recent chat with Public Trust clerk It was suggested I close Trust but this person didnt know much and gave no further details.

My accountant is also vague

So I was wondering how do i 'undo' or close the trust - about 110k has been gifted of a family home. Lots to go but what is the point of doing yearly or lump sum gifting. Public Trust person said Ministry of Social Development? no longer recognise trusts for rest home subsidies. Fair enough.


I am self employed - very part time - could get sued but remote chance. Husbands retired. So no real point in having a Trust or am I wrong.


So, can someone, anyone recommend whether/ how to close Trust. What costs are involve? Will the gifted money (into trust) have to get repaid to ourselves? will property in Trust have to be sold back to ourselves in order to close Trust.

We are not planning to move house for 5 -6 years. Should we just wait until then and the 'Trust' sells the property.

We have rentals - but they are not in trust just in joint names.

Armed with some knowledge from wiser people / - on this site - I can make sure i know what to do rather than continue to leave this matter on the back burner. Yes I know I should see accountant but feel if I'm better informed then I know what to ask for to get done.

Thanks in advance for your help.

[Rosco]

Hi,

This is probably more for your lawyer than accountant.

My general thoughts would be you already have the Trust, and it will provide some benefits, so why not keep it?

- What are you annual costs to keep the Trust? You should be at least preparing an annual balance sheet and minutes, and ideally having an annual meeting. So cost maybe $500 per year?

The main thing a trust provides is asset protection. If you somehow get sued (might be unlikely but will still be possible), and your have administrated the Trust reasonable, then the assets in the Trust should be safe. Is this benefit worth more to you than the $500 cost per year?

If you close the Trust
- Yes you would need to sell the property back to yourselves. Maybe $750 to sell and $750 top buy, so $1500 + GST legal fee's
- legal cost to prepare deed winding up Trust, get a quote, but maybe $500 + GST
- Effectively the assets will be distributed to the beneficiaries, so the asset would be passed back to you, and this would cover the gifting already done. Say for example $500k house, $100k gifted and the Trust still owes you $400k, the house would be sold back to you, the $100k trust capital distributed to you and your $400k offset.

Hope this helps

Ross

[Perry]

As soon as I saw "Public Trust," alarm bells rang. You would do
well to steer clear of them, given their rapacious fees reputation.
Also, the veracity of this statement is questionable, in my view:

Public Trust person said Ministry of Social Development
no longer recognise trusts for rest home subsidies.

Like Ross, I see no compelling reason to wind up the Trust.
There are quite a few other advantages, too, that you may
not have mentioned because you didn't know of them.

If the Trust is not a Trading Trust, then you can do the annual
book work yourself - it's not hard to maintain a Minute Book.

[Cpt707]

...if you are an 'undischarged bankrupt settlor' with...no dependents...single and nearly 70 years old and living in the mortgage-free Trust house as a Tenant, you still have to pay for all the up- keep costs, insurance ,rates plus all the Trust expenses from lawyers and accountants....What are the advantages....???

[Rosco]

Hi Wawawewe,

You also want to think about why did you initially set up the Trust?

- Rest Home subsidies - If you gift under $27,000 per year, and continue to gift the remaining loan to the Trust in the same manner, you should still be eligible for rest home subsides. If you gift greater than this, then the larger amount is currently counted as an asset that should pay for rest home fees. But my opinion is that rest home subsidy rules must change and also only a small portion of people go into rest homes.
- A Trust can be useful when passing assets onto your children, and protecting children from themselves.
- If you have income into a Trust, it is a very good structure for allocating the income to beneficiaries and potentially saving tax through allocating to the lowest income earner

If you were starting again now, you might choose not to have a Trust as the benefits might not outweigh the costs in your opinion.

But as you already have the Trust, it would appear to be a shame to give away some of these benefits.

Ross

[Perry]

. . . plus all the Trust expenses from lawyers and accountants. . . .What are the advantages?

I agree with that, based on those items specified.
However, my parents have a Trust. It involves no
lawyers or accountants for its day-to-day running.
I.e. a passive (non-trading) Trust does not need
to have such expenses.

[donthatetheplayer]

Another benefit a trust provides is asset protection upon your departure from this world. If you have children and no trust and you have left your assets to your children, upon your departure your childrens partners are automatically entitled to 50%. If you have a trust the assets can be kept in the trust and distributed to your children at a later date.

Consider defacto relationship laws in NZ. There's a definite risk.

[Cpt707]

Thanks Ross....a reply this afternoon from my accountant as regards the strategy of 'gifting' at the $27,000 per year, is as you have indicated. So good to have a concurring opinion as regards the politically vulnerable 'rest home subs'....Hope I never have to go there ! Reason for setting up Trust Dec. 2009 due to sudden life changing illness, which left me disabled and unable to practice my life-long profession ever again. Eventually an unsecured creditor took action against myself while bankrupted and a deal was done via expensive legal actions to demand back a large portion of my non gifted assets in the Trust....a case of to late'. Property sold and left with a mini house... Trust was OK.. but my assets were still vulnerable. The lesson learnt " always expect the unexpected .." As regards my now adult kids, cannot a Will be structured so that any estate goodies be transferred to an Inheritance Trust set up in their names on the departure of myself..?? Much appreciate your help. Chris

[Rosco]

Hi Chris,

You could set up a Trust upon your death.

In regards to your Trust experience. "large portion of my non gifted assets". So with most trusts, I prefer to try to gift all the debt asap, and worry less about the rest home subsidies that I believe will change anyway.

In 2009 you probably couldn't gift all the loan without paying gift duty, but that has changed in 2011 of the top of my head.

Ross

[Cpt707]

Hi Ross, Gift duties" were abolished ,effective 1 Oct 2011. Also hit by the Insolvency Act 2006/and the Property Law Act 2007 and was not provided with a " I am Solvent Certificate" when Trust was set up and ones 'Intention' to remove assets from potential creditors can be brought into question...a minefield when seen in hindsight... Setting up a separate Inheritance Trust for each child to obtain your estate proceeds on death, provides protection from Relationship property claims,business risks and if they are getting close to retirement themselves, some protection for the asset testing,if still going. Some number crunching for the existing Trust management yearly costs at this time : $2410/year x say 20 years to go is $48,200 total savings with no Trust . Thanks Ross for your input. Chris

[Rosco]

How do you get $2410 per year?

If the Trust is non active, and just owns a personal house, it should be more like $500.

You have obviously had a bad experience, but it sounds like your lawyers didn't set your Trust up properly at the start, so I'm guessing you would have had some come back on them?

Ross

[Wayne]

Another benefit a trust provides is asset protection upon your departure from this world. If you have children and no trust and you have left your assets to your children, upon your departure your childrens partners are automatically entitled to 50%. If you have a trust the assets can be kept in the trust and distributed to your children at a later date.

Consider defacto relationship laws in NZ. There's a definite risk.

My bold - not true.
The partner gets half if the inheritance is brought into the relationship property.
If you left say $100k and they put that into a seperate bank account in their name and the interest went into that account and they never brought it into the relationship it is all theirs still.
The partner doesn't get half.
I expect they could use the money for a special holiday for the family and still retain ownership but not for 'regular' expenses.

[Cpt707]

..the House in the Trust was being rented long term, and a Corporate Trustee was set up with my son as sole director.The property was sold to pay back the negotiated amount to the OA for the creditors.. the roll on" of the accountants fees was there. However they will reduce in the near future. The yearly 'gifting' process from the legal team and the company yearly fees plus the Professional Trustee fee of approx $345... the lawyer did admit' that the Trust turned into a 'sham'. At the time I was totally exhausted from the whole process. So possible 'dissolution' of the Trust as no relationship issues, OAP and undischarged bankrupt with a credit rating of minus____ for the next 7 years +++ and the value of the assets approx $200K....is the way forward. Why fight the legal profession they are all protecting their own interests, like any other professional group. Thanks Ross for your input. Chris

[Winston001]

My husband and I set up a Family Trust in about 2006 - In retrospect its probably been a waste of money as we didn't really need it).

A recent chat with Public Trust clerk It was suggested I close Trust but this person didnt know much and gave no further details.

So I was wondering how do i 'undo' or close the trust - about 110k has been gifted of a family home. Lots to go but what is the point of doing yearly or lump sum gifting. Public Trust person said Ministry of Social Development? no longer recognise trusts for rest home subsidies. Fair enough.


I am self employed - very part time - could get sued but remote chance. Husbands retired. So no real point in having a Trust or am I wrong.


So, can someone, anyone recommend whether/ how to close Trust. What costs are involve? Will the gifted money (into trust) have to get repaid to ourselves? will property in Trust have to be sold back to ourselves in order to close Trust.

We are not planning to move house for 5 -6 years. Should we just wait until then and the 'Trust' sells the property.

We have rentals - but they are not in trust just in joint names.

Armed with some knowledge from wiser people / - on this site - I can make sure i know what to do rather than continue to leave this matter on the back burner.

So much to answer, so few words to say.

1. If you were persuaded to form a trust by your accountant, you were sold a canard. I mean no disrespect to accountants because I've worked with them for decades and appreciate their tax orientated perspective.

2. You can unwind a trust but the better decision is to vest the trust assets in beneficiaries.

3. A trust appears simple on the surface but most people do not really understand the complexities. And they should not have to - none of us expect a heart surgeon to detail thechordae tendineae when surgery is necessary.

4. My apologies but I'm sort of over this. The law of trusts arises from the 13th century and its fundamental purpose is to protect assets. Not from taxation, not from eminent domain, but from those who might steal or erode the trust assets.

5. Consider these:

• A university student daughter, whose tenant liabilities you guarantee. The flat burns down. Worse, the neighbouring flat also burns down. You are legally liable for her.
• Your daughter marries an alcoholic gambler.
• Or her spouse turns out to be hopeless
• Your grandchild is intellectually handicapped.
• The couple buy a fish and chip shop and lose every $ they have.
• The marriage is unhappy and they divorce.

6. The value of a Trust is you can protect the capital for at least two generations.

[wawawewe]

Thank you all contributors for your perspicacious, extremely thought provoking and useful comments!!

The points raised have been 'food for thought' and now I'm inclined to keep the Family Trust going - (main reasons benefits of capital protection and protecting kids from themselves and partners), (thanks Winston001 for pointing out those dire but quite possible scenarios) and consequently have a raft of new questions:

As I mentioned, the Trust has been on the backburner for years - the yearly $27,000 gifting hasn't been done for approx 4 years, so is it possible to gift a lump sum of 4 x 27k for those missed years?
There is now the option of gifting the entire property to the trust - if this option is taken is the Trust seen as a 'sham'? If it is seen as a 'sham' how does this matter? - other than not being eligible for rest home subsidies. I'm not concerned overly about rest home subsidies as its (hopefully) unlikely either of us will end up there.

Rosco - in one of your replies to Chris you mention - " I prefer to try to gift all the debt as soon as possible" - does this mean you recommend the now legal lump sum gifting of the entire property to the trust rather than just the 27k per year?
Rosco - you say I should be keeping an annual balance sheet and minutes and having a yearly meeting - I haven't done this but I can do a balance sheet - i assume this is just a tab of the amount gifted each year, is the yearly meeting supposed to be with the lawyer or my family or both? and what kind of points are the minutes supposed to cover? As you can see I have not been advised of this requirement.

Also, the rental properties are not in the Trust - they are close to mortgage free and CF+ yes, we pay tax on the CF+ - so should the renters now also be gifted into the Trust so less tax is paid on the income - income paid into Trust then distributed ? From memory when the Trust was set up I think the lawyer said to leave them out because if they were included in the Trust we couldn't claim the CF- (expenses) off our income. But this is no longer the case - as now instead of receiving tax back we pay tax.

Thanks for your help and input.