Family Trust security

[keleri]

I have a number of properties in a discretionary family trust.
The background to this is at a lawyers trust seminar part of the benefits were that by putting your assets into a trust protected them from anyone making a claim on you personally. An example of this was at the time a Health Board was attempting to get payment from an elderly gentleman that had run up a sizeable bill but could not pay as he had no money, so the Health board was attempting to sell his home. The court basically said that was not possible as the home was in a trust. this being a completely seperate entity to the person it could not be touched. A few other examples were given.

Well I am in the position that one of my trustees has had to go on a sickness benefit. The last few years have been fine but now WINZ have said they want a copy of the trust deed and a list of assets.

I was going to comply but on second thoughts felt that this situation fell into the same category as above. ie a personal situation is completely seperate from the trust connection. I had the feeling that they want the trust to pay up.

Would I be right to inform them politely they do not have the right to look at this option.

I have recently sacked my lawyer over another matter as they were incompetant.

Any comments on this would be greatly appreciated.

[MJU]

There is a firm of lawyers around whose work I have seen along similar lines. IMHO the firm do the right thing for estate planning but totally fubar the tax opportunities.

The lawyers are not WRONG as such to put everything into trust, but they are not considering all the possibilities. Fortunately for a client of mine his previous accountant just ignored the lawyers advice advice to immediately transfer all the existing properties into the new trust structure, so a portion of the inevitable tax loss was still accessible.

Sites like PT should mean clients are sufficiently educated to know what doesn't sound right.

In terms of WINZ I think a happy middle position would be to show them the trust deed which will establish that the sickness beneficiary is not a beneficiary of the trust. If that is the case they have no need for further enquiry, and they may even see it that way! If they do not then perhaps it is time for a new trustee.

[xris]

Would I be right to inform them politely they do not have the right to look at this option.

Any comments on this would be greatly appreciated.

I'd say you'd be wrong.

If it were me I'd inform them rudely.

xris

[xris]

There is a firm of lawyers around whose work I have seen along similar lines. IMHO the firm do the right thing for estate planning but totally fubar the tax opportunities.

The lawyers are not WRONG as such to put everything into trust, but they are not considering all the possibilities. Fortunately for a client of mine his previous accountant just ignored the lawyers advice advice to immediately transfer all the existing properties into the new trust structure, so a portion of the inevitable tax loss was still accessible.

Sites like PT should mean clients are sufficiently educated to know what doesn't sound right.

In terms of WINZ I think a happy middle position would be to show them the trust deed which will establish that the sickness beneficiary is not a beneficiary of the trust. If that is the case they have no need for further enquiry, and they may even see it that way! If they do not then perhaps it is time for a new trustee.

This whole subject touches a nerve with me.

In my experience there are very many so called professionals, eg lawyers, who really do not understand the tax issues involved with structures, asset planning and protection.

I have had a lot of trouble dealing with a number of lawyers over this. I also have had an enforceable order in my favour against a professional trustee who simply had no idea of what he was doing.

What is scarey is I have no doubt at all that there are very many people out there whose trusts and general structures are worthless because they have been settled and organised by ignorant professional people. The IRD would doubtless have a field day if it wanted to investigate a few law firms and the trusts they have settled for clients.

My experience has been particularly unpleasant to say the least. In my opinion a person's first port of call should always be an accountant when looking for asset planning.

xris

[Ivanhoe]

Yes xris I agree...
It's great we have sites like Propertytalk and MA forum so we are reasonably well informed about asset planning and can raise an alarm when advice give does not sound right. Yet the only safe way I thing is to learn as much a you can about this subject - I think Daniel Feller referred to it when he commented on professionals in his interview couple of months ago.
If your professional advisors know more than you - you've got a problem!

[Perry]

Well I am in the position that one of my trustees has had to go on a sickness benefit. The last few years have been fine but now WINZ have said they want a copy of the trust deed and a list of assets.

There is a type-of middle ground, here. Ask WINZ to
put their request in writing (if not already so) and ask
them what statute, ordinance, regulation, Court Order
or Order-in-Council they rely upon to give them the
authority for making such a request/demand.

Such makes it clear you are no push-over patsy.

Your inquiry can be done politely, even nicely, but, as
it seems it's a private Trust, you are not compelled to
provide WINZ with anything. Whether or not the person
is a discretionary beneficiary is irrelevant, in my view.

The only possible implication might be some indebtedness
that may be 'called in,' as can occur in insolvency cases.

[roseneath_rat]

If you professional advisors know more than you - you've got a problem!

Can you clarify this Ivanhoe? I would hope that professional advisors (ie- those who you pay for advice) should know more about their specialist fields than you.

[Ivanhoe]

Daniel Feller in his interview ( http://www.propertytalk.com/forum/sh...terview+daniel ) draws a clear distinction between being "saver" and "investor":

2. Be very clear and focused on whether you want to be an investor or a saver. I have an interesting article on this topic and it is often misunderstood. Investing is the process of building financial wealth. Saving is setting money aside now (i.e., foregoing current consumption) to spend it later. An example of saving would be buying real estate to fund retirement. Investors never really “spend” their financial capital, but continue to manage it going forward. The building process continues even as we begin to use our financial capital.

As you can see the rules of the game will be quite different for these two approaches and if yo choose to be investor, this will apply:

4. Should you choose to become an investor you need to know more and constantly educate yourself in a wide range of subjects. As a saver or new investor you need professional advisors to give you advice. A professional investor on the other hand needs a professional advisor to help execute plans.

The difference is risk vs. leverage - if you are "saver" financial advisors provide lots of leverage with relatively low risk as there's not much at stake. But at some stage and at some level any leverage starts bringing more and more risk into equation that needs to be compensated for and the only way is to educate yourself. As Matthew Gilligan said during MA trading even the whole entity structuring this is not THAT difficult and (i would add) relatively easy to learn. Obviously you will not start righting your own trust deeds etc but VISION requires KNOWLEDGE...
ALL investors I know know quite a lot about all the specialist fields to have a chit-chat on par with any professional in the given field (finance, taxation, entities, legal stuff, buildings etc) because this knowledge keeps their risk low and options high...
Hope it makes sense - I did my best explaining, feel free to ask for clarification is/as necessary...

[Perry]

I wait with interest, too, even though I've a good idea
what was meant by that aphorism, quoted by Ivanhoe.

One side-effect is that having being somewhat conversant
with a range of investment-related matters helps one to
critically appraise a professional advisor's worth/experience/
advice.

"Back then," I suffered an example when a lawyer was
setting up a family trust. Later in the year, when going
over the figures with my accountant, he asked where the
Deeds of Gift were?

Huh?

There weren't any; I didn't know there should've been some,
executed at the same time as the Trust inception; the lawyer
was well-covered and the debacle cost me $15k. That really
hurt, 'back then.'

To me, that quote indicates to me that having professional
investment advisers is one thing, managing them is quite another.

[MJU]

Xris,

I note you say "My experience has been particularly unpleasant to say the least. In my opinion a person's first port of call should always be an accountant when looking for asset planning."

You could also look for a lawyer / accountant pairing where they have respest for each others angles!

There can be no happier situation than the clients professionals working together in the interests of the client!

The other tie-breaker on this sort of situation is how you rank the asset protection v immediate cashflow priorities. Starting investors will be looking for cashflow now, and cashflow and tax-efficient transferability of assets later.

Just about everyone can find $27,000 of something to gift eaach year while doing this, whether it is gifting the equity in the family home, or stage two gifting until an LAQC is income positive...

[sweetpea]

I have a situation with my trust where each successive lawyer argued about it

my laywer valued the property being placed in the trust and then valued the lease of the property to perpetuity. he then offset them and i gifted the balance (which was small). lots of arguments between various lawyers over the structure.

i agree with the above posters that suggest using a tax accountant. they seem to be much more clued up about the structures and the documentation

[Rosco]

Simple Answer

The original question stated a sickness beneficiary is Trustee in the Trust. Therefore the Trustee's name will be on all the titles of the properties. Therefore from a simple glance WINZ thinks the sickness beneficiary owns these properties.

So you need to prove in the most simple manner that the sickness beneficary does not own any part of these properties. This is normally done by showing the Trust deed and minutes for the purchase of each property if necessary.

If the sickness beneficary is also a beneficary of the Trust, then you need to be very careful about any guaranteed return from the Trust, but normally you should be fine. If in the past this beneficary has been allocated say $100,000 per year, and the Trust Deed has a clause like "the Trust must keep the beneficaries in the custom they are used to", then WINZ could argue the Trust must allocated $100,000 every year and they would include this as his income.

Ross

[Perry]

So you need to prove in the most simple manner that the sickness beneficary does not own any part of these properties.

Hello, Ross

I suspect you are part-right and part-wrong.
The beneficiary does part-own the property,
if listed on the CoT [as a joint owner].

But the beneficiary 'stands possessed upon
Trust' of the said property.

I.e. the beneficiary part-owns the property [as
Trustee] solely for the benefit of the beneficiaries,
as described in the Trust Deed. (As you observe).

That WINZ numbskulls wont understand that is
par for the course.

Of course.

[xris]

I have no doubt that the topic of

"What a trust is and how it works"

is one that is invariably totally misunderstood by very many people. Because of this misunderstanding lots of incorrect thinking and assumptions take place.

I do not say that I fully grasp the entire concept, and certainly not the legal or accounting niceties (have to check the spelling there), but over time I have grasped enough information to realise that there is more to trusts than meets the eye.

At a simple level it seems to me that many people just look upon them as being similar to companies.

A simple question again: "Is a trust capable of owning anything?" or "Are the trustees the owners?"

xris

[Dean@Massiveaction]

I would only ever go to a structure specialist. And use one who shops their opinions. An accountant or lawyer will not give you the best advice, too complicated and the law changing too often these days. Even top companies like Withers tsang give their trust work to GRA. Matthew or Garth are the 2 safest bets for structuring. Don't waste money on an accountant or lawyer.