Are you in a position where knowing a bit more about how Trusts operate is going to assist you in your life? Luckily, you've landed in the right place. I'm Simon Gyenge and welcome to Simon Says. Now, the purpose of this video is to look at what we mean when we say ‘Trust Administration’. We're going to look at some key definitions, what we mean by annual trust administration, what it means to have an independent professional trustee involved, whether it's time to consider winding up your trust and more. Remember, it's about legal literacy, not legal advice. So hopefully you take something away from this video because remember, the more you know, the better you are equipped to deal with a future situation. Welcome along. Welcome along to those of you tuning in online and welcome along to those of us in the room. My name is Simon Gyenge I'm one of the directors at LOA Law. We're a full service general practice law firm, and we cover everything from conveyancing to relationship property and business transactions, through to Trust management, which is what we're going to be talking about today. So the purpose of this talk is to go through what is Trust administration, what is the management of Trusts, what are some of the key terms, what is that Trust administration that we're covering off, how we handle beneficiary disclosure, what is the purpose of an independent Trusteeand then, we're going to finish with whether it's time to wind up the Trust and a few points and tips and things to be thinking about. And then at the end, if we've got some questions, then we'll then we'll hit those too. So it wouldn't be a legal seminar if we didn't have a disclaimer. So everything that we talk about is not intended as personal legal advice. It's just designed as general information. So if you have a situation that is personal to you, you're involved in a Trust that is operating at the moment and you feel like some of this is applicable, then please talk to your trusted legal advisor, and if you don't have a trusted advisor, then now's maybe the time to reach out to us. Would be happy to help or look for for a lawyer that can that can assist you. Okay, so as I say, it's designed to be about legal literacy, not legal advice.So first we're going to start with what is a Trust. Just to, set the tone. So a Trust is a legal relationship rather than a legal entityand what that means is it's describing how someone holds property for the benefit of someone else. So an example that I've given previously is that my friend goes off overseas and he wants me to look after his dog and so he gives me $10,000 to care for his dog. So he is the Settlor who has settled funds into this Trust. I'm the Trustee. I'm looking after the funds strictly for the benefit of our beneficiary, which is the dogand that is really the basis of every modern Trust in New Zealand. now, these Trusts are governed by, the Trusts Act 2019, which oversees all Trusts in New Zealand.And then formal Trusts are also specifically governed by their Trust Deed and any variations to that. So whatever that Trust Deed says, is going to be the baseline for how that Trust is operated and administered, what powers exist and more importantly, often what powers don't exist. So some key terms that are relevant to our Trust. Firstly the Trustee. So the Trustee as I said is the person or people holding the assets for the benefit of the beneficiaries. Trustees are charged with the day to day management of the Trust assets. Okay. Discretionary beneficiaries are the people that should be benefiting from the assets of the Trust. Now, importantly, during the lifetime of the Trust, the only people that should benefit from these Trust assets are the discretionary beneficiaries. So if there's ever a situation where a non beneficiary is receiving some kind of benefit from a Trust, then that's a real red flag as to whether that's a breach of Trust for the Trustees. The appointer is the person that has the power to hire or fire Trustees a really important role because in effect, the appointer is the one that dictates who is actually running the Trust day to day. So their power is very, very importantand it must be executed, bearing in mind their fiduciary obligationsand the fiduciary obligations is that it's a relationship between the appointer and who they're appointing, and they have to execute it faithfully and for good purpose. Now, the last one that I've got there is annual financials. Now annual financials, although it's not strictly a Trust term, we are going to talk about it today, which is the annual financial assessment of the Trust assets basically. So this is where an accountant is going to be involved, whether it's a chartered accountant or otherwiseand they're going to prepare these annual financials to account for the income of the Trust, account for the assets of the Trust and where it's all going, where it's staying. So what is Trust administration? A Trust is in existence and the administration of that Trust is just the Trustees operating it day to day. So there's various obligations placed on those Trustees as to how they're going to administer the Trust. First point I've got is that the Trustees need to record what they're doing. So decisions that Trustees are making, they need to put pen to paper recording what decisions they're making and why they're making them. And the purpose of that is to ensure that the Trustees are acting for the benefit of the beneficiariesand more specifically, in the best interests of the beneficiaries. So that's that's really their overarching duty, which leads into point two, which is the financial management of the Trust. So Trustees are holding assets. That's what they're doingand they're either holding them or they're distributing them to beneficiaries. So on a day to day basis, the Trustee is probably not going to be doing a lot over the course of a year each day. But as a general overarcher, they're going to be making sure that the Trust assets are being preserved or that the investments are the correct investmentsand it's not necessarily that the Trustees themselves are going to have the skills or knowledge of how to do that.
And that's where they'll involve other professionals. So the Trustees might have a financial advisor that is looking after the investment portfolio of shares and, and such, and the Trustees are going to rely heavily on that financial advisor in terms of their advice around what are the best investments and how to manage those funds. Some of the times where Trustees get into the most trouble is when they don't have a diversified investment portfolio of the Trust assets, which which looks like, say, all of the Trust assets and residential property or all of the Trust assets in Coca-Cola, shares. So wherever there's a lack of diversity, there's an increased risk of lossand that's where Trustees can get into trouble that they haven't actually looked out for the beneficiaries and and if those loss events arise, then they may be personally liable for those losses. So the financial management being the primary objective of the Trustees to make sure that those funds or assets of the Trust are being preserved.
And that really plays into that idea of acting in the interests of the beneficiaries. So that's overarching every decision that the Trustees make, every investment that they invest in, every property that they purchase or sell, that the concept of it being in the best interests of the beneficiaries, that is overarching, overarching principleand then if a dispute arises and things get exciting, that's when the High Court get involved and the High Court have the jurisdiction over Trusts in New Zealand.
So if there's ever a dispute about how a Trust is being operated, a distribution that was made or not made as the case may be, that's where, beneficiaries can take the Trustees to the court, to, to try and challenge decisions of the Trustand we are seeing a fair amount of litigation in relation to Trusts.
It's not obvious to me that it's more than, say, it was five years ago, but five years ago is when the new Trusts Act 2019 was passed, and there was a lot more information around what you're required to do as Trusteesand on the back of that, we have a lot more beneficiaries with easy to access information that's all in one place because prior to that act, we had the Trustees Act 1956, which obviously is from a few clicks ago, and there's many cases that had interpreted that act.
So the true legal position on a number of Trust matters was hidden from the public in case law and decisions through the courts and what the Trusts Act 2019 has done, rather than its purpose being to create new law, its purpose was actually to consolidate all the existing principles that govern Trust law in New Zealand into one place.
Drafted in plain English so that hopefully more people can understand and have access to justice effectively and off the back of that, we have seen more queries about the administration of Trusts, both from, the general public and then also from, professionals who have been grappling with what it takes to administer Trusts properly and effectively and, at a price point that is going to work for for the people that are involved in those Trusts. The biggest issue that has come out of the Trusts Act passing has been clarification around what disclosure is required to beneficiaries. Now, prior to that act coming into force, the most recent case at the time of significant profile was Erceg and that was a case that outlined the requirements of disclosure to beneficiaries and the legislation that was passed encapsulated pretty well exactly what the court said the position should be around disclosure to beneficiaries
The policy reason behind disclosure is to ensure that beneficiaries can hold the Trustees to account in the administration of a Trust. So if we come back to that overarching principle of the Trust, which is to hold assets for the benefit of the beneficiaries, and therefore every decision that the Trustees make, they have to bear in mind is this in the interests of the beneficiaries, it's very difficult for those beneficiaries to hold the Trustees to account if they don't have any information.
And more importantly, if they don't even know that the Trust exists or that they have a beneficial interest. So these rules are all about trying to create transparency so that Trusts are run properly in New Zealand, a lot of the fear around this particular clarification of law has been, I don't want to have to disclose to the beneficiaries because of all the issues that it might cause within my family, within my friend group
and, and a real anxiety around particularly financial information, in the disclosure obligations. So it is something that we have to address fairly regularly and it can be broken up into basic Trust information and further Trust information. So basic Trust information is information that the Trustees have a positive obligation to actively disclose to all discretionary beneficiaries and that includes that a Trust exists and that the beneficiary is a discretionary beneficiary of the of the Trust who the Trustees are and how to contact them.
The beneficiaries right to seek a copy of the Trust Deed and any documents that vary that deed and also the beneficiaries right to seek further information about the Trust. So then that further information, there's no positive obligation on the Trustees to disclose that actively, the beneficiaries can seek disclosure of that information and that's things like financial information. Now the Trustees are not obligated to disclose when a request is put to them, but they have to have legitimate reasons for not disclosing.
Now, the act very helpfully lays out something like 8 or 9 broad categories or reasons why the Trustees, might consider not disclosing and either not disclosing in full disclosing in a redacted fashion or disclosing a part of the information, rather than the whole picture and those include things like the impact on the beneficiary themselves, impacts on other beneficiaries, how easy it would be to redact information out, those.
So and there's a number of other ones, basically legitimate basis’s for the Trustees withholding some or all of the information and the important thing is for the Trustees to turn their minds actively to whether they should or shouldn't disclose. Now, as if if the Trustees want to withhold information from every single one of the discretionary beneficiaries, then they're going to need the blessing of the court in order to do that.
If they disclose to at least one discretionary beneficiary, then they have that discretion at their disposal without needing to revert to the court. So although there are some positive obligations, there, it's still very broad in terms of what is and is not acceptable disclosure by Trustees to beneficiaries and even, to date, five years down the track from when the act passed, but only three years from when it actually came into force in 2021.
We have very little guidance from the courts around what disclosure is reasonable, what withholding of information is reasonable. So we've got a still a bit of a journey for Trustees to truly know their position. But one of the things that I tell people is that, because because a lot of people will have, say, have set up a Trust, they've pushed their family home into the Trusts, they might have other investments or something in there.
And I say, if you owned the Trust in your personal names, would you expect your kids to know that you owned your home and 100 times out of 100, they say, yes, that would be fine. So then if we take it into the Trust and we say, okay, so the Trust owns your home and some cash in the bank, why would you not be okay with your kids knowing that the Trust owns a home?
If you would expect them to know that you did on your home, if it's in your personal name and it's really just bring it back down to the reality that there's a lot of fear mongering about disclosure and what it looks like and what it doesn't look like. But in my estimation, that fear is more about a worry that the beneficiaries are going to be able to force them to distribute to them, not them actually knowing things.
Most people assume that the beneficiaries know a thing or two about what the assets may or may not be. if if Mum and Dad formed a Trust and, and they have a home, a bach, and two commercial properties, it doesn't take a lot of thinking to make the leap that maybe that Trust has four properties in it.
Or maybe that Trust has two properties, and there's a company and the Trust owns the shares in that company. So these are things that are relatively small logical leaps and it's more about, okay, what does it mean them having that information now, what's the impact of them having that information both on the beneficiaries but also on the Trustees and how they're looking after these assets?
So day to day I don't see a huge amount of issue but it does crop up and it's important for the Trustees to be aware of it because the disclosure obligation kicks in once a child is 18. So as soon as that beneficiary no longer is an infant or at least the legal definition of infant 18 and under or under 18, then now they are themselves, as an adult, entitled to disclosure, and you have to treat them as such.
So it's an important step for Trustees to take to tick that box and make sure the administration is is is not being done incorrectly for something, something relatively trivial in most Trusts.
Now, independent Trustees. This is where you have a, it doesn't have to be a professional. The true definition of an independent Trustee is a Trustee that has no beneficial interest in the Trust assets. So, if I set up a Trust and, my neighbour as Trustee with me. But they are not a discretionary beneficiary or a final beneficiary of that Trust, then they are an independent Trustee for all intents and purposes.
The reason that it's often associated with professionals is because it's a role that professionals commonly play as being the independent Trustee for clients and from my perspective, as an advisor, I always recommend that if you, if you are going to go down the route of independent Trustee, then having a professional was the way to go. Now, the primary reason for that is that the Trust cannot make decisions without all the Trustees resolving together.
And often that requires the signing of documentation. So if I did appoint my neighbor and he is on a holiday in Nepal and I need to sell my property, I now need him to sign documents from Nepal and that might not be as easy as we would like it to be. He might not be contactable, he might not be able to get to a printer.
He might not be able to do electronic signing. Whatever the reason, it's a barrier and if something happened to him, then I lose my independent Trustee. So in days gone by, even professionals would be personally the Trustee of Trusts but these days we have independent Trustee companies and so we will operate as Co-Trustee through a Trustee company.
So it might be a LOA Trustees Limited would be would be an operating Trustee company. The benefit of having a company as your independent Trustee is that in my case with two other business partners, we have three people that could sign documents on behalf of that Trustee. So this allows a bit more flexibility. If I'm traveling, my co-directors can sign on behalf of that Trustee company keeps the operation flowing.
And that's kind of a practical reason. In terms of having a professional Trustee on board, really what it comes down to is strong, effective governance and administration of the Trust. So the really the the the reason to have a professional involved is to make sure that the Trust is operating correctly. Now you can have it that you don't have an independent Trustee.
And and on on the Trust and there's no legal requirement under the Trusts Act 2019 for an independent Trustee, there are many Trust Deeds that stipulate that there must be an independent Trustee for decisions to be made and the driving force behind that is, is protection from self benefiting. So if a Trust allows for the Trustees to benefit themselves, then it impacts the strength that that Trust has.
If someone challenges it. So not being able to distribute to yourself without an independent Trustee involved is a way of reducing the risk that a Trust will fail when it is tested through litigation or otherwise. That that immediate act of governance is a really strong way of assisting a Trust and making sure that on an annual basis, it is being run correctly, so that if a challenge arises, there's strong evidence of the Trust's history, how it's made decisions that it's made decisions correctly in the right manner.
and again, coming back to that guiding principle for the benefit of the beneficiaries. So without that independent Trustee, I don't believe that it's people being naughty actively that is the biggest problem. What is the biggest problem is truly laziness or not even laziness. That might be a little bit too emotive. Inattention, complacency. Those are bigger enemies to Trust administration than people who are actively trying to be naughty through how they run the Trust.
It would be a, minority of situations that I've dealt with or seen through cases where Trustees are actively trying to be manipulative or trying to break the law, and that one of the ways they're doing that is by not having a professional Trustee involved so that they can just do whatever they want, that that's not the overarching or the or the overwhelming majority of it.
It's more just people who don't live and breathe Trust law, running a Trust, and maybe getting some of the details wrong because they just don't have the expertise and so that's why having that professional involved is going to, is going to potentially add value and help to manage the risk or ensure the Trust manages the risk that it is intended to manage.
Because the worst thing that can happen is that a Trust is formed with an expense associated with forming it. It's run for a period of time incorrectly. A challenge arises for that Trust, and it fails because the Trust doesn't It hasn't been operated properly, has met as outstanding. Gifting hasn't been done correctly. Decisions were made to benefit non beneficiaries accidentally.
These are all things that are going to impact the Trust and then it hasn't served its purpose. It hasn't done that job of risk management or asset planning for current generation and future generations. So those those are all kind of the benefits of having an independent Trustee involved in terms of the detractors or the downsides of having an independent Trustee, the big ones that I or that the big legitimate one.
And I say legitimate because even in, even if the independent Trustee is doing everything they should, there's going to be annual and, and ongoing costs. So potentially, some independent Trustees do fixed annual fees as a baseline, and then attendances is on top of that. At our firm, we, we just do time involved. So whatever we need to do to administer that Trust, that's how we we charge for our services.
And I'm sure there's other models out there that independent Trustees are working with. But to have a professional involved, there's going to be a cost associated. So that is that is just the way, the way it is to have someone there with you. But the other one that is quite a big one is timing and that can be that if you are wanting to do things on the fly and then suddenly you need your independent Trustee to sign documentation with you, then that's going to add a time delay.
So what you're looking for from your Trust advisor or from your your co Trustee is timeliness around signing of documentation and and really that comes down to a shared understanding of what the expectation is. So if if I have a client that is expecting me to turn around documents within 30 minutes of them emailing them to me, that's not a happening thing in my day.
But a client should certainly expect that if they send me a Trust document to sign that it's going to be signed that week and if they provide me with a reason for urgency, that it could be done even that day as an expectation. So it's all about having a really clear dialog with your with your advisor to make sure that you know what's going to happen when decisions need to be made
And we're really talking about big things. We're talking about buying and selling property, restructuring, buying investments or transferring investments. These things are generally not things that happen overnight. They require assistance and advice and therefore the timing of getting things signed can be built into the overall attendances that your Trustee is needing to make. So I really easy example of that is if you're, selling your property, a really crunch time is going to be when the original agreement is being signed.
And if there's an auction, then that's a really important time that the Trustee is is available, to be able to sign that auction agreement to get that contract, over the line. Once that's done, the rest of the documentation, in order to be able to actually complete settlement, the independent Trustee will just sign that in conjunction with when you sign that and it can be signed at any point before settlement.
So all of the urgency evaporates at that point, which which means that it's really just about making sure that you understand the critical points and that you've got an adviser on your team that also understands those critical points and that's another reason why, in terms of timing, having someone that's not a professional as your independent Trustee, that can be a real detractor because they won't necessarily appreciate when things are critically urgent and when they can be and when they can wait for a week.
And, you know, sometimes it crosses my desk and client says it's very urgent. It has to happen today and I look at my workflow for the day, and I say to the client, it will get signed, but it can get signed tomorrow. So it's about having an open dialog and really having someone there with you that is going to, make sure that the Trust is operating effectively, and things are getting done when they need to get done.
So the other thing that I didn't say actually there were around benefits. One of the ways that a Trust benefits overall is that assets are held and they don't change ownership when people pass away. So if if mum and dad set up a Trust and they're the Trustees with with an independent Trustee and then they pass away, the Trust still owns those assets and new Trustees get appointed.
But the Trust just carries on and one of the benefits of an independent Trustee is that they also just carry on with the Trust. So when mum and dad have passed away, that independent Trustee is a bit of a can be a bit of a guiding post, and have and have lasted from when Mum and dad were alive and now when the kids are taking over to assist through that whole process.
So it can be a real good way of a bit of continuity and even in situations where, you know, when we talk about our appointers having the power to hire and fire Trustees, once the parents are gone, then often that power passes to the kids, and the kids might immediately fire the independent Trustee, put their own in or put themselves in.
But just by having been there, there's an opportunity to provide that next generation with advice, whether they take it or not is up to them, but it likely would precipitate them getting their own advice. So if they're not wanting to stick with that independent adviser, that mum and dad had, they will then have their own advisor and it really sets them up for success of seeing the importance of making sure things are done right, so that when they're taking over complex legal structures, then they're going to also administer them, hopefully correctly.
Now, that transition from parents to kids is one of the trigger points where Trusts get wound up and certainly out of the act when it was passed in 2019 and then came into effect two years later, that really brought into sharp focus how many Trusts there are in New Zealand, whether they are appropriate and probably let me rephrase that, not whether they're appropriate, whether they are serving the purpose that they were set up to serve, whether they are serving any purpose.
So it really because you had a clarification around the expectations on Trustees, a lot of professionals that maybe previously weren't doing annual reviewing or charging for annual attendances started charging and started doing annual reviews, and there were requirements on the Trustees to bring Trusts up to date. So not only would it be maintenance of the Trust, there were specific tasks that all Trustees needed to respond to, like beneficiary disclosure and getting on record that that had formally been done.
And out of that, there's been lots of conversations about whether the Trust is even worth keeping and people really reconsidering. Is it actually serving a purpose now, those conversations are not about do I want to Trust? Do I not want to Trust? The conversations are about what risk do I have in my life? What family dynamics are there within my family?
And is a Trust an appropriate legal structure to manage or mitigate those risks and those situations? And so the decision to wind up a Trust that is really a conversation about, well, what is the purpose of this Trust? Is it a Trust that needs to be in existence? And what are the consequences of winding it up and the consequences might be, tax consequences.
They might be, risk consequences. So if you are in business, for example, and your home is in a Trust and it pops back out into your personal names, then, if something goes sideways in your business, then maybe your house might be, snapped up by creditors. So there could be significant consequences to winding up a Trust.
And, and often what I've found is that actually, those conversations are important to remind our Trustees and our core beneficiaries of the purpose of the Trust and if we go back to, you know, our detractors, the main detractors being timing and costs, if we're then focusing back on what is the purpose of this Trust, suddenly it's an equation of is what the Trust is doing.
Is that worth the cost that we're incurring to maintain us and keep it running annually? And that is a personal decision for, for, each individual client to decide whether they are happy to pay for the pleasure against what they're getting for it or whether it's not enough and the role of the professional advisor, whether they are the Trustee or just the advisor, is to outline what the pros and cons are so that the client can make an informed decision.
That's that's really all it comes down to and then again, coming back to our guiding principle of is it in the beneficiaries is it in the beneficiaries interests. So when we're making that decision to wind up, often the bar can be higher than it was to set up a Trust, because now we're looking at actual consequences of winding up the Trust.
And we're also looking at the the future potential of the Trust. So an analogy that I've done previously is, is that a Trust is bound by the rules of the day. So there's laws that govern Trusts, that are fundamental and then there's laws that are that are just come into pass, kind of under, say, the latest government.
So an example of that would be the bright line tax laws, which under prior governments were, two years and then five years and then ten years and then under the current government, it's been reigned back to two years. So that's an example of a law kind of going up and down and changing and so the Trust itself hasn't changed, but the way that the Trust might operate, changes in response to laws.
And that's a bit like, you know, speed limits and you're on the open road, you go through a small town speed limit drops, the car hasn't changed, but you just drive slower. You exit the town, you speed up again. So a Trust as a vehicle can respond to whatever the laws of the day are and just because the laws of the day have restricted how a Trust can operate, it doesn't mean that in the future, if those laws are to were to change that that Trust might not have a benefit for for the beneficiaries.
So again, when we're looking at winding up, we're trying to not so much crystal ball gaze but we're trying to look at the ways that Trusts can physically operate and therefore whether there might be some potential benefit down the track that winding it up would slam the door shut on and again, we come back to is it worth the ongoing costs and administration and potential timing delays of having the Trust against this potential future benefit that we may or may not receive?
So it's all just about having open, honest conversations, laying it all out so that then the decision can be made and different people will have different, attitudes or appetites for risk and so then they might want to keep a Trust, just because they have a really low appetite for risk and then others might, might say, no, I'd rather save the annual cost and be able to do what I want, when I want and run the gauntlet
And so everyone's a bit different. Now, in terms of the wind up process. The assets of the Trust need to be dealt with. So whatever is owned by the Trust needs to be distributed out to the discretionary beneficiaries. Anything that's not distributed when the Trust is wound up will be distributed to the final beneficiaries under the terms of the Trust Deed.
That's generally how it's going to play out. So that process is not so much that it's complex, but it is a process that you want to handle correctly. So whether you have a Trusted accounting advisor who is handling that on your behalf, or whether you have a Trusted legal advisor, my strong recommendation is to involve at least one, probably both, to make sure that it's handled correctly and that there's no adverse consequences that you hadn't anticipated, because that's when there is a, there's a crystallisation of rights.
It's it's a it's a line in the sand where once the Trust assets are distributed out, then if there are consequences, that is when they will resolve and kick in. So and you can't necessarily unring that bell, which is why it's super important to make sure that before the decision is finalised, that the correct advice has been obtained.
And certainly, I think pretty well across the board, my recommendation is to get accounting advice before winding up a Trust. Often, even if the Trust isn't earning income, it can be appropriate to make sure that there's accounting advice, that there's no reason to keep it, keep it in place, which is kind of and that's something we haven't really talked about in terms of income earning versus not income earning Trusts.
And I think that you can you can draw a pretty clear distinction between the two and definitely in relation to the wind up conversation, because Trusts that are earning an income are generally active. They generally have things going on if it's, income earning assets such as, properties, then there might be risk reasons to keep the Trust in place
And if a Trust is not earning income, maybe only has a family home. then it's a much simpler Trust and so the reasons for that Trust might not exist and it might be that actually it's not necessary to have that Trust in place. So the complexity of the Trust assets is going to assist in that conversation of whether the Trust is serving a purpose or whether it's not serving a purpose, and then making sure that that process is handled correctly.
It's going to protect the beneficiaries and the Trustees from any adverse consequences. The last thing on on winding up is making sure that it ties in with the overall estate plan for, for our core beneficiaries, making sure that we don't wind up a Trust that is actually serving a bigger purpose within the plan for when mum and dad pass away.
And if a Trust is being wound up and assets distributed out, Wills need to be updated to align with that to make sure that the assets are then going in the right direction. Because for most family Trusts, that, in people's lives, what they'll do is they'll then execute Wills that push everything into that Trust. Very simple
Wills, when you get rid of that Trust, that doesn't make any sense anymore for that Will to be pushing things into the Trust. So the Will needs to be updated to distribute either to the kids or the nieces and nephews or the dog or SPCA or whoever it is that, that that distribution needs to go to, and making sure that everything is talking to, talking to each other, rather than leaving things open or not quite finished.
Which I think covers off really the winding up of Trusts in terms of whether it's something that you should be doing or not and again, just comes back to get that specific advice for your circumstances. I don't believe that there's a right or wrong answer and Trusts have this weird phenomenon of you don't quite know whether they're going to benefit you down the track.

00:39:04:34 - 00:39:48:20
Unknown
So as a professional advisor in this space, we're always cautious to to recommend winding up a Trust and probably one of the things that of recent has come up more and more is when beneficiaries are living overseas as a, as a motivator for winding up Trusts. So if any of the, children are living in Australia, living in the UK, South Africa, wherever it might be, then that might be a reason that rather than having those assets passed to the next generation through a Trust, having those assets passed to the next generation through your Will may have a better tax outcome, depending on how Trusts are taxed in the other country
where people are living. So it's a really important thing to take into account. It does often necessitate getting advice in that other country, so in Australia is a good local example where if you want to know the true position, then really you need to talk to an advisor in Australia about the beneficiaries position over there and how it relates to distributions that may or may not be made to them.
And then you can plan accordingly with your assets in New Zealand. But at the end of the day, if the assets are primarily to benefit mum and dad, then I'm very cautious to put in place legal structures that are to the detriment of mum and dad for the benefit of kids. You know, that's a decision that they can make.
But but ultimately you've got to be looking at the overall picture, not just I might save on some tax in Australia if I do it this way. So that may be one of the considerations, but it has to be part of the broader conversation of of what's right for this Trust structure, what's right for the overall, structure of of the people sitting in front of me.
And that is a crash course in Trust management and administration. So we haven't covered everything, but we've covered a lot of the core of what it takes to administer a Trust, what it looks like, who's responsible for what and hopefully you've taken stuff away from it. Thank you for those that have tuned in, online and what we're going to do now is we're going to we're going to close off the the live and and then I'm just going to deal with questions in the room.
but thank you for thank you for tuning in.
an appointer should be named in the Trust Deed. That's generally where it's going to sit. Now it is often buried in the Trust Deed. So modern Trust Deeds will have the appointer hopefully listed early on in the document under the definition under a definitions kind of style section at the beginning.
But, Trust Deeds gone by, it's buried within it as to who holds the power to hire and fire and they're often not signposted as this is the appointer. The clause is often called powers to appoint or power to appoint Trustees and it's kind of it's often in the middle of the document.
So it can be hard to find. It should be in there outlining who holds the power. What happens if they pass away or lose capacity? One of the things that we do a fair amount of at the moment is actually updating the, definition of appointer in old Trust Deeds and varying the Trust Deed to use a more modern definition, because the old definition, it was drafted for the time, it's limiting.
It doesn't take into account well, if someone loses mental capacity, the the legal position 20 years ago on what could and couldn't be done was different. Whereas now there's clear guidance in the law that if someone loses capacity, then that power of appointment can pass in certain ways. So that's assisted us with actually being out of draft better clauses, which we try and insert into old Trust Deeds.
And then if there's not, if you if there is no definition or there's no one that fits the definition in the Trust deed, then they Trusts Act has provisions that relate to who has the power to hire and fire and I think it's from memory it's section 92
The fees that are incurred on behalf of the Trust are owed by the Trust, but the Trustees are personally liable for the debts of the Trust.
So if you have two Trustees, so say you have, mum and dad and the only asset in the Trust is the family home and there's no cash, actually, in the Trust. When the Trust gets billed, then mum and dad are, liable for that, for that invoice.
the settlor themselves doesn't retain any power. over the assets unless it's expressly stated in the Trust Deed. So that means that their role is really, as the person that settled assets
Unless the Trust Deed gives them powers like Trust Deeds often say the settlor has the power to hire and fire Trustees, the settlor has the power to vary the Trust Deed, often we see these days that it's the Trustees that hold those powers and the appointer will be specifically named. So rather than it just being the settlor.
No, no. So the settlor is not a deemed beneficiary. They must be named as a discretionary beneficiary. Okay. Yep and most Trusts in New Zealand would have would have the settlor as a beneficiary.
There are Trusts which are commonly known as mirror Trusts, that the settlor is not a beneficiary and those were Trusts that were developed, specifically in, in the 90s because the tax position for death duty was that if you were a beneficiary of a Trust that you were settlor of, then those assets were deemed to be part of your personal estate for death duty.
When death duty was abolished, then it was no longer necessary to limit Trusts in that way and you had the floodgate open of settlors being beneficiaries of Trusts that they settled and that's really where we sit in modern terms. That settlors will be beneficiaries under most Trust Deeds.
Yes. Yep. it's not uncommon for children to be appointed as co Trustees with the surviving spouse.
There's pros and cons. Pros are that the surviving spouse is not going to be able to, distribute those assets to themselves and then to a new partner or in some other direction, you know, so it's a it's a protection measure that the assets stay within the family. Downside, the surviving spouse has to run all their financial decisions past their child before making any, any decisions around selling their house
and that might seem oh, nah, but, you know, my daughter would just want to support me or my son would just he'd want what's best for me. The time when it gets tricky is when two reasonable minds disagree on what an appropriate action is and particularly as people get older and there is an allegation laid against them that they are going cuckoo for Coco Pops that can manifest in different ways.
So dad, who has never liked caravans, suddenly wants to sell the house buy a caravan, in Vietnam and travel around for six months of the year and buy a caravan in the South Island, travel around six months a year and bounce between the two for the rest of his days and the kids go He must be losing it He would never, you know, he would never do this.
And yeah, if mom was alive or, you know, and, he must he must have lost capacity because. Because he. This is not him. But he might have just had an epiphany and decided that he wants to change his life and so it could be that there's a problem, but it could also be that he just wants to do something different.
And if if the children are involved in how the assets are owned, then he might not have the freedom to do that and that's a time when suddenly the restrictions become two people having just disagreements and that can be where, you know, it can go sideways. So it's I think it's a case by case. I tend to support the idea that, that it is much better to involve kids in the structure if you are much older, because the younger you are, the more time your child is now involved in your legal affairs.
So, the again, the Trust, the Trust is, is generally responsible for, for the wind up of, of itself and I mean, what you're really looking to, if you look at it from a technical perspective, is that the Trustees resolve to distribute the assets out to the beneficiaries, and then they also resolve to, bring forward the end of the Trust.
And that's how a Trust is wound up. Basically, the mechanism is to vary the length of the Trust to bring that date forward to tomorrow, and then that the Trust hits up against that date and then it has come to an end. The Trust itself never ends in terms of what the Trustees have done or not done. They will always be responsible for, for those.
And so it's not like turning off a light. It's more like leaving the room. So the light's still on. There's just nothing in there and then and there's no one there and that's really how a Trust is then left at the end of its life. So it's going to be the people who are driving that decision that are generally going to fund the wind up.
it can be. Yeah. If the court has to get involved. It's not favourable for most Trusts to have to get the court involved. Some of the biggest decisions, I mean, the definitely the biggest problem with knowing what the law is when it comes to the interpretation of the law is that most, most disputes are resolved by settlement like in, like in New
So it's a it's a small percentage that make their way through the courts and even then often when they get into the courts, people realise how expensive it's getting and then they resolve matters outside the court. So a lot of the interpretation of the law actually happens between professionals and is settled privately and no one ever knows about.
the amount of times that it happens over Trusts that hold assets that are just not worth that degree of costs. yeah. I think that, a case recently out of Australia, which was Addleman related to litigation around whether the Trustees were right to not disclose certain information, was one of the decisions. Legal fees were upwards of $200,000.
You know, so I mean, it's it ramps up really quickly, which is not really in everyone's interests.
So there is you can't go through the disputes tribunal formally. There are services available. So there's mediation services available, through the Law Society, and also arbitration through the Law Society. But it's voluntary. So rather than it being something that you can force other parties to the table instead of litigation, you can yeah, you can instigate that process.
and there are, there are huge benefits to going down those routes, particularly around reaching I mean, the biggest difference between the two is that mediation, the parties have to agree on the solution and they can not agree at any time. Arbitration, once you are in the arbitration process, the arbitrator is now deciding and the parties are no longer choosing whether to accept that decision.
So it's quite different between the two. I personally haven't been involved in arbitration relating to Trust matters and often by the time everything is that septic, actually the parties need the independence of the High Court, which has the experience, the expertise and the, let's call it the, legal pedigree to deal with complex questions.
Thank you for watching or listening, and I hope you've taken something away that you can use in your life today. Simon says if you enjoyed this video then hit the like button. Subscribe to our channel to stay up to date with future videos. And if the conversation sparked a thought worth sharing, then leave a comment. I look forward to bringing you future Lego chats.
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