Will and Kate have heard about a new Trusts Act that comes into for on 30 January 2021.
Will and Kate have been married for 25 years and have 2 children together – their son Harry who they are very close to and their daughter, Meghan, who they are estranged from. Will and Kate settled a Trust many years ago, while they were dairy farmers. At the time they owned a large farm and had many workers working for them. About ten years ago they sold the farm and have since retired onto a small life style block which is still owned by their Trust. They have heard about a new Trusts Act that comes into for on 30 January 2021, and want to know if this will effect their Trust.
Trusts Act 2019
This Act brings about many changes to the Trust law including:
Imposing greater responsibilities on Trustees to understand the terms of the Trust Deed, and the obligations that go along with being a Trustee of a Trust; and
A presumption that beneficiaries of a trust will be provided with certain basic trust information. They are also entitled to request other, more detailed trust information, which could include among other things, financial statements, valuations of trust assets and trustee resolutions.
These changes have got Will and Kate thinking! They have come to us with the following questions:
Why do we have a Trust?
Trusts are a great way to protect your personal assets (such as the farm) from business creditors or potential Work Safe prosecutions. Owning few (or no) assets in your personal name helps to prevent creditors and/or Work Safe from claiming against your assets to satisfy personal debts.
Trusts were often settled for residential care purposes. Given the changes in Ministry of Social Development’s policies however, in some cases, having a Family Home in a Trust can actually make it less likely someone will receive a residential care subsidy in the future.
Trusts were also settled for tax purposes. It has been our experience that these are most often no longer relevant but that may need to be checked with your accountant.
Do we still need a Trust?
Although the likelihood of a claim by a creditor or Work Safe has greatly reduced with the sale of the farm, the relationship that Will and Kate have with their daughter may mean a Trust is still useful, particularly if Will and Kate want to exclude Meghan from their Wills
Under the Family Protection Act 1955 a person has a “moral duty” to provide for their children. A failure to do this may enable Meghan to make a claim against Will or Kate’s Estate. However, if all assets are owned by a Trust (where there is no automatic requirement to provide for children), then there is effectively nothing in Will or Kate’s Estate for Meghan to claim.
What do I need to do with my Trust now?
If, like Will and Kate, you are wondering how the new Act may impact on your Trust, we recommend you seek legal advice to ensure:
That the Trust will comply with the new law and therefore protects the Trustees;
that you exclude any beneficiaries (such as Meghan) who you do not intent to benefit from the Trust; and
that the person who has the power to appoint or remove Trustees upon your death or if a Trustee becomes become mentally incapable, is actually the person that you trust to take on this role.
Should you keep your trust?
If you are unsure as to whether or not you should keep your Trust, or have other questions relating to Trusts and the new Act, contact Nicole or Shelley to discuss.