Family Trusts

[Emblaze Pete]

Just a few questions on family trusts.............

1) In regard to the principal of control everything and own nothing. If I was to become a trustee of my own trust does this principal get thrown out the door. Am I not then owner of the assets inside the trust as a trustee? .... My Lawyer seems to think it is ok for me to be a trustee of my own trust.

2) When signing documentation (for example S&P agreement) . Do all trustees of the trust have to sign agreements or can just one of the trustee sign or does this just depend on how the trust was originally structured.

cheers

[CJ]

1) you hold the legal title but not the beneficial title so it does not go against that principle. If you were sued for all your money, the assets you "own" as trust would be ignored.

2) depends on the trust. some will require all trustees, some just a majority. It would be rare that something only required one signature.

One option is for you to sign it personally with an "or nominee and then it just gets settled into the name of the trust. The trustees would need to authorised it somewhere in between.

Another option would be for the trustees to give authority for some to act as agent for the trust bound by certain limits. I am not sure how this would work but it would be similar to give say $100k to a sharebroker and getting them to actively manage it as agent for the trust.

Just a few thoughs but as always run it past someone with a qualification and indemnity insurance

[Emblaze Pete]

Thanks for that CJ much appreciated

[spurner]

Trusts

Hi Pete

1. From the legal advice I received when setting up my trust, and from subsequent experiences, you are correct. The point and purpose of the trust is to distance yourself from the assets. If you are a trustee and beneficiary then they are effectively yours and if it ever comes to it, a court will rule you and the trust the same, and the assets won't be protected. If you don't have an annual meeting and have the trustees sign the minutes, and undertake normal trust activities, then the trust can also be ruled invalid. So basically have someone else be the settlor and trustees, and yourself as sole beneficiary with the power to dismiss existing and appoint new trustees at any time.

2. I'm not sure what's legally correct but in my case it's decided it based upon the power and authority of the document. So for an important document like a mortgage all trustees would need to sign it, for a S&P offer just 1 trustee would sign it. For something minor like opening an account I might just sign it myself.

Make sure your lawyer is experienced with trusts and you have signed minutes resolving to buy a property, obtain a mortgage etc. And you pay your professional trustee/s a fee for their services. Basically have all the paperwork to prove it is a genuine trust.

Cheers,

P.S. I am overseas too it's not really 0330 here!

[Emblaze Pete]

CJ

So if I was to sign as an agent for trust. Would I sign like this?
A) “My name” as agent for “Trust Name” and then sign away ….

I am assuming this is as good as all trustees signing documentation, but I guess I must first obtain authorization from trustees first? Does this need to be formal authorisation or just email / verbal from the independent trustee or all trustees?

Thanks for your help

[krispedersen]

Hi Emblaze Pete,

You can be a trustee but you generally need a independent trustee as well which mitigates the risk you're referring to. The next step in regards to this and one which is good for flexibility is having a corporate trustee which is a company. You will generally have you(plus your wife maybe) and an independent party as directors. This allows you much more flexibility if you ever have a major catfight with this person or any other reason why you would wish to remove them.

Cheers

[cube]

Our Trust Document specifically allows any two Trustees (out of three) to make decisions that affect 10% or less of the Trust's assets - this removes the need for our (me + SO) Independent trustee to sign off on decisions like putting in a new bathroom or kitchen of our PPOR.

The relationship between Trustee and Beneficiary is an interesting one - does anyone know of any case law where a Trust has been ignored soley on this issue?

cube

[CJ]

The problem with being Trustee, settler, beneficiary is that there doesn't appear to be any separation, and is more likely to be called a sham. I think this is the risk so you need to avoid the trust being classed a sham. therefore it is best to have an independent trustee. Another important thing on whether it is a sham is how you treat the trust assets. is it just an alter ego of yourself. Are things considered and documented. My trust is currently running a find line (though I never touch trust assets, though I do decide on how they get spent) but will probably set up later on so that trust owns companies of which I am director so that I can control what they do, and the trust only decision each year si whether or not to stay invested in the company.

EP - that is how you would do it but you would need to have authorisation by the trustees to act as an agent before you did that. If buying properties, I would do it in your own name and then put "or nominee" as an easier option, then get the authorisation and then settle in the name of the trust.

Re having someone else as settlor, this is a good thing. However, you will potentially be a deemed settlor when you gift your $27k each yar (definately will in the eyes of the IRD (it is in the legislation) and may in common law as well).

Corporate trustee is also a good idea and I will move to this also next time i need to change trustees. this eliminates the need to chagne title of house when you change a trustee (this costs money), as you will only change directors (free on companies office web site)

Cube's suggestion re only need two signatures for minor issues is a good one, especiall when the trust gets big enough that you can purchase a house for less than 10% of capital

[Perry]

Huh?

1) The Land Transfer Act requires ALL owners (Trustees,
in this case) to sign documents, no matter what the
Trust Deed says.

2) If there is no debt owed to you by the Trust AND the
Trust owns any assets AND a reasonable claw-back
period has passed after any gifting AND the Trust is "acting
properly" (pursuant to the Trustees Act and as covered
by others in this thread) AND the Trust Deed is appropriate*,
no creditor can reasonably pursue a claim against you,
hoping that a successful action will expose the Trust's
assets to seizure.

That, after all, is one of the major reasons for a Trust.

PT has several books on the subject in its bookstore.
There's also http://www.trustsonline.co.nz/ mentioned
in another thread, just the other day.

* An example of "innappropriate" would be a Trust you
set up for yourself alone. One that you set up for your
family (older, contemporary or younger) can include
yourself without prejudicing the Trust.

[CJ]

Perry - 1) I thought we were referring to offers which wouldn't require all signatures (would it)but you are right that all signatures would need to be on the final doc at the LTO. Either way, singing offer in your own name with "or nominee" and then settling in name of trust with all signatures should be the easiest way.

This is one reason to have a corporate trustee as then you just need one and there will be no change of trustee that requires the documents to be refiled at the LTO.

2) agree

[Perry]

Oops

1) I thought we were referring to offers which wouldn't
require all signatures . . .

Right. Now that I look back at it, I had it wrong, based on
the initial post. It's only the execution of the Land Transfer
documents that requite all signatories. And perhaps any
mortgage papers, too - but that may be a requirement
of the mortgagor.

This is one reason to have a corporate trustee as then
you just need one and there will be no change of trustee
that requires the documents to be refiled at the LTO.

Next time some major event occurs, I plan to change to
a corporate Trustee. It seems to have everything going
for it.

[Emblaze Pete]

Thanks for the contribution guys. Tremendous amount of info here to chew over. To me anyway, the bottom line is, as with many things legal ..its very grey!!!! .. Greyness only adds to confusion and many differing interpretations. Doesn't help planning much, but I guess there is never any certainties anywhere until it has been tested through the courts on many occasions.

In my case, I am the sole beneficiary of the trust . If after what Perry's has quoted is true. ( "* An example of "inappropriate" would be a Trust youset up for yourself alone. One that you set up for your family (older, contemporary or younger) can include yourself without prejudicing the Trust. ) My trust must be a expensive waste of time, when push comes to shove?? ( My solicitor set the trust structure and keeps telling me that all is ok ) It currently has only 1 trustee and 1 independent trustee ( expensive solicitor) . The 3rd trustee passed away recently. I was going to offer myself as the third trustee to make life easier in documentation sign off etc but think I will stay well clear of this scenario.

So now I am worried !!!...... Do I need to restructure trust for me to NOT be sole beneficiary of trust

cheers

Pete

[Emblaze Pete]

hmm having read through my trust deed, it states i am both the appointer and a primary beneficiary . Not sure if this makes a difference or not.

[CJ]

Slow down- You will be the primary beneficiary as you have stated and your should also have as primary beneficiarys your children and your childrens children (I love the bit of legalese) even if you dont have any yet - remember you are planning for the future. Secondary (or tertiary beneficiarys if you children are in the first set) will be your parents etc so if you die with no kids, it will go somewhere or maybe a charity.

If you are changing trustees (since one is no longer with us) consider a corporate trustee (just a normal company but you will file a non active declaration to the IRD and the only admin on it is the annual return). have yourself, and someone else as director. Much easier to change in the future.

Appointer gives you the right to appoint trustees and beneficiaries. that means you control the controllers (the trustees) and the beneficiaries - this can be helpful if you want to add a future wife etc (remember that the turst is descretionary so even if named they have no claim to the assets and only get what the trustees hand out (and you have control of them). This may help with income splitting (ie. give the housewife some low tax income).

[Perry]

I concur with CJ's advice about a moment's pause.

Now, if your lawyer says its OK, ask him about the pitfalls
you've seen mentioned here. Weigh his answers carefully.
I do think you should be one of the Trustees and it would've
been helpful if the settlor was a parent. Or an executor or
trustee acting on behalf of a parent.

One point we have not mentioned is that family Trusts
incorporate the phrase "natural love and affection" in
relation to (i.e. as the motivator for) providing for one's kith
and kin. Proving for oneself may be a part of prudent
retirement, succession or estate planning.

It is not necessary to name names. Spouse, siblings, children
and grand children (unborn) can fairly be described as
discretionary beneficiaries. You will be both a final and a
discretionary beneficiary. So . . . .

The "natural love and affection" is, I believe, a common test
when such matters get before the Courts. The judge would
pose the question, is this a reasonable action that could be
taken by a person when motivated by "natural love and
affection" for the beneficiary? So, if a company was a
beneficiary, it would likely fail that test unless all the
directors and shareholders were "family."

"Do I need to restructure trust for me to NOT be sole
beneficiary of trust."

No - not necessarily. If the Trust Deed provides for your
(future) spouse, your (future or present) offspring and/or
parents and/or brothers & sisters and/or grandchildren (or
whatever) AND you just happen to be one of the people in
the list, I surmise that would be quite OK. That may be why
your legal adviser is saying that everything's OK.

For the moment, you may be the sole beneficiary, but a
Trust Deed that includes the above does make it clear that
your intention is to provide for your posterity. That would
not be the case if there was no provision for subsequent
generations to be included, subject always to the discretion
of the Trustees.

It can be a bit of a tangled web, but once the principles are
understood, it's not an impossible concept to get your head
around. Good luck in your quest.