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2019 Trust Act - are Trusts still worth it?

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  • 2019 Trust Act - are Trusts still worth it?

    Hello folks,

    The new Trust Act 2019 was passed in July, and existing Trusts have 18 months to comply. Some updates were overdue, such as specifying that a sole trustee cannot be a sole beneficiary, and extending Trust life from a maximum of 80 years to a maximum of 125 years. Other changes include:
    • Obligation to notify all beneficiaries that they are beneficiaries, permit them access to Trust information including accounts, and hold trustees to account if they are unhappy with performance.
    • Mandatory duties for trustees.
    • New record-keeping requirements.
    • Restrictions around the use of trustee exemption and indemnity clauses.
    • Mechanism to request the court to review the decisions and actions of trustees.

    Along with the AML requirements, this will further add to the inflexibility and expense of managing Trusts (and without proper management, many more may be classified as "sham" Trusts). Trust beneficiaries will have new legal entitlements and be able to review investment decisions and hold trustees to account. One article (couple of years old) makes the implications sound a bit dire:

    "In many situations, trustees comprise mum and dad and a friend as the independent trustee, sitting around the kitchen table, signing off the annual accounts and creating a set of minutes. Now, as a trustee, you will be judged against industry experts, who are professionals. You will be expected to perform to the same standard as an expert and, if you are found wanting, the repercussions could be serious. Going one step further, those trustees who have not engaged an investment professional to assist with investment decisions, but have taken on that responsibility themselves, run the most risk. If this is the case, you've taken on management as well as governance responsibilities and, again, you'll be judged against the standard of investment professionals on the job you have done. The key point is, if the bill is passed into legislation, as it works its way through the parliamentary process, the drafted approach to disclosure will pave the way for increased awareness for beneficiaries of their right to hold trustees accountable."
    (NZ Herald: "You'd best be prepared if trusts bill becomes law")

    Trusts no longer offer the tax benefits they used to, and have been under increasing attack in relationship property cases. NZ has no inheritance or death taxes nowadays. So do readers think it's still worth having a Trust?

  • #2
    Trusts still offer significant tax benefits in some circumstances - those with kids in their late teens, or an unemployed spouse or other close relative.

    But I have personally (and professionally) held the view that trusts have been "overkill" in most people's situations for quite some time. The costs of setting up and running a trust (because I believe they should be run properly; it should be judged against the professionals, because that's what's required) often exceed their financial/tax benefits, and most people don't actually require the protection benefits they provide against relationship problems and legal risks.
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    • #3
      Any distinction between passive and trading Trusts?

      E.g.
      A Trust that holds rental properties?
      A Trust that just holds the family home?
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      • #4
        The taxation rate for trusts with 33% is higher compared with personal or company rates, trusts for business reasons such as trading-trust makes sense, but still tainting rules is an important consideration – in summary Trusts are over rated…

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        • #5
          Asset planning, is a trust's strong point....we're all gunna die and wills are too easily overturned/challenged.

          Eg
          one of my kids is my fav and the other is a ratbag.... my will leaves everything to the good one and nothing to the evil one. No no no says the judge I don't care what you wanted when you were alive, now that you're dead I will decide how your estate is divided between your kids.

          If you don't want that to happen, get a trust.

          Cheers
          Spaceman

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          • #6
            Originally posted by Perry View Post
            Any distinction between passive and trading Trusts?

            E.g.
            A Trust that holds rental properties?
            A Trust that just holds the family home?
            There is no distinction between "passive" and "trading" trusts....they are the same thing.
            There are 2 types of trusts in NZ

            1: d...…… trust
            2: non-d ….. trust

            Who knows the "d" word ……. I have posted this on propertytalk before for anybody that wants to cheat by looking it up.

            Cheers
            spaceman
            Last edited by spaceman; 08-11-2019, 11:05 AM. Reason: typo

            Comment


            • #7
              Originally posted by spaceman View Post
              There is no distinction between "passive" and "trading" trusts....they are the same thing.
              What I was getting at: does this revamped legislation treat trading and passive Trusts in different ways?

              While I agree that a Court challenge to a Will is easier than a Trust, the settlor needs to have Trustees who are incapable of being swayed by legal beagles, never mind a Court.

              Been there - stunned by that.
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              • #8
                Originally posted by spaceman View Post
                Asset planning, is a trust's strong point....we're all gunna die and wills are too easily overturned/challenged.

                Eg
                one of my kids is my fav and the other is a ratbag.... my will leaves everything to the good one and nothing to the evil one. No no no says the judge I don't care what you wanted when you were alive, now that you're dead I will decide how your estate is divided between your kids.

                If you don't want that to happen, get a trust.

                Cheers
                Spaceman
                The death part is interesting - a friend of mine died suddenly and he was a property investor with properties in a trust but he didn't have a will. There's a family fight going on as the estranged dad who was absent most of his life now is set to get the lot as the next of kin whereas his siblings who have been a big part of his life get nothing. The trust in probate doesn't appear to offer any protection, though I don't know all the facts.


                cheers,

                Donna
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                Comment


                • #9
                  Sure sounds muddled. A Trust is quite functional in the absence of a Will. If it's a discretionary Trust, then it would be odd that there's any contested consideration of a next-of-kin in relation to the Trust and its assets.

                  The Administration Act deals with intestate matters, so that may be what's implicated in whatever was not in the Trust. What happens to what's in the Trust is (or should be) governed by the Trust Deed. Probate is usually only related to Wills, not Trusts.

                  Although you said there wasn't one and provided the Trust Deeds allows that, a Will can appoint a replacement Trustee / Trustees, or delegate that power to the executor[s]. If there was only one Trustee (unusual), being the deceased, then that might make it more awkward.

                  Like Apartmental, I'm presently reflecting carefully on the usefulness of my (now 21 years old) Trust.
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                  Comment


                  • #10
                    Originally posted by donna View Post
                    The death part is interesting - a friend of mine died suddenly and he was a property investor with properties in a trust but he didn't have a will. There's a family fight going on as the estranged dad who was absent most of his life now is set to get the lot as the next of kin whereas his siblings who have been a big part of his life get nothing. The trust in probate doesn't appear to offer any protection, though I don't know all the facts.


                    cheers,

                    Donna
                    I agree with Perry
                    I cannot see how the death of a person has anything to do with a trust.
                    Do you have a copy of the court decesion?
                    I am interested in reading it .
                    Were there loans by the deceased to the trust ?
                    Was the trust over 75 years in existence and needed to be woundup ?

                    Comment


                    • #11
                      Thanks all for your replies. I guess it depends a lot on what you use the Trust for. Mine's purely for asset protection to be honest, so I'm probably exactly the sort of person they're aiming to get rid of with this updated legislation. Well, they won, I'm winding it up!

                      Comment


                      • #12
                        Originally posted by apartmental View Post
                        Mine's purely for asset protection to be honest, so I'm probably exactly the sort of person they're aiming to get rid of with this updated legislation. Well, they won, I'm winding it up!
                        Why do you say that?

                        There's the usual scaremongering in the report:

                        "In many situations, trustees comprise mum and dad and a friend as the independent trustee, sitting around the kitchen table, signing off the annual accounts and creating a set of minutes. Now, as a trustee, you will be judged against industry experts, who are professionals. You will be expected to perform to the same standard as an expert and, if you are found wanting, the repercussions could be serious. Going one step further, those trustees who have not engaged an investment professional to assist with investment decisions, but have taken on that responsibility themselves, run the most risk.
                        No mention of the likely hefty fees charged by "industry expert professionals," versus the mostly fee-free honorary status of the kitchen round table crowd. The fees of the 'experts' could well consume any improved financial return on 'investments,' so the beneficiaries would be no better off.
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                        • #13
                          Originally posted by Perry View Post
                          Why do you say that?
                          Some would argue there's a certain "shamminess" (is that a word) to Trusts with a settlor who is also a trustee and a beneficiary, with a token corporate trustee to rubberstamp decisions...when all the time it's the settlor who's really making the decisions and still kinda sees the Trust assets as their own.

                          I suspect the new legislation will weed out many more of these.

                          Comment


                          • #14
                            Originally posted by apartmental View Post
                            Some would argue there's a certain "shamminess" (is that a word) to Trusts with a settlor who is also a trustee and a beneficiary
                            If you think about it, it is 'normal' for a Trustee to be a final & discretionary beneficiary.

                            The 'settlor' problem was one created by legislation, in the first place.

                            I settled a Trust for my son. (I was the settlor.)
                            He placed his property in the Trust.
                            Thereby he also becomes a settlor.
                            (No matter that he did not intend that.)
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                            • #15
                              Originally posted by Anthonyacat View Post
                              Trusts still offer significant tax benefits in some circumstances - those with kids in their late teens, or an unemployed spouse or other close relative.
                              Depends if the setup costs + depreciation recovered + ongoing costs is less than the tax benefits.
                              So eg setup 5k for LTC Trust and PPOR
                              5K depr recovered. 10K
                              Of course you cant distribute all the trust income to a 19 year old, they still owe this!
                              Then they start working so not much benefits. Good if Spouse not working then can distribute the lot.
                              Trust is ideal for business which carries inherent risk.

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