Articles by Janet Xuccoa

Many people ask me what is a professional trustee is, what they do, and what value they can bring to a trust. Often, these people are considering how they want to structure their asset holdings and what sort of return they want to make from them.

The simple answer is that a professional trustee who does their job keeps you out of trouble and usually, out of expensive trouble that you wouldn’t have seen coming.

We’re like the Family Trust Police.

What is a Professional Trustee?

A professional trustee is a person (or a company) who acts as a trustee of a trust. That person (or company) has no interest in the assets of the trust – that is they are not a beneficiary of the trust and are not entitled to share in the assets of the trust.

What does a professional trustee do?

Generally speaking, a professional trustee’s function is to work with the other trustees of the trust in looking after the beneficiaries, the trust assets and in administering the trust. The difference is that a professional trustee is trained to understand what has to be done when running a trust.

Some of the functions professional trustees carry out are:

• arranging meetings with the other trustees to discuss transactions the trust is going to undertake, such as buying property, purchasing shares, obtaining loans, etc;

• making unanimous decisions with the other trustees;

• considering the existing investment policies of the trust and discussing with the other trustees whether these policies should be changed;

• signing appropriate documents with the other trustees such as agreements for sale and purchase and loan documents;

• Ensuring all the decisions the trustees make and the affairs of the trust are correctly recorded in minutes and in deeds;

• checking gifting is completed;

• other miscellaneous matters such as checking insurance policies are up to date.

Ultimately, a professional trustee’s role is to check that the interests of the beneficiaries are considered, the assets of the trust are protected for those beneficiaries, and the trust is running correctly.

Why Should you Have a Professional Trustee?

It is important to remember that trusts are set up for a variety of reasons such as protection against means testing (eg: aged care fees), a defence mechanism from property relationship claims, and for asset protection.

However, a trust will only protect assets if the trustees carry out their functions correctly: This includes administering a trust properly. If trustees don’t meet their duties, allegations can be made that the trust is a sham and if those allegations are substantiated, asset protection can be lost. Ultimately, this can result in the trust assets being made available to satisfy claims, for example claims by creditors.

As noted above, professional trustees assist other trustees by ensuring all of them meet their legal duties and responsibilities. For instance, a professional trustee can make certain the trustees meet regularly and record all the transactions the trust undertakes.

Additionally, the presence of a professional trustee who does their job right can demonstrate that the trust is real. Assuming the professional trustee carries out their functions properly, the chances of a successful allegation of sham trust should be minimised.

Professional trustee fees

Professional trustees usually charge fees, on the basis of holding the position of trustee. It is a small amount of money for the security received.  For more information on our Professional Trustee fees, please contact us.

Professional trustees will take out insurance policies in respect of their functions and there is a cost to this. Also, professional trustees may charge for the work they do on behalf of their co-trustees and on behalf of the trust.

For example, a professional trustee can charge a fee for preparing minutes and executing documents.

Recently, in a couple of cases, the courts favoured the appointment of professional trustees. These cases showed that having a professional trustee gave credence to the existence of the trusts and the transactions undertaken by the trusts. So, despite the fees that may be charged, serious consideration should be given to appointing a professional trustee.

So in Summary:

Having a professional trustee is not legally necessary, but it can be an enormous advantage. Professional trustees are usually well acquainted with trustee duties and what action has to be taken to satisfy those legal responsibilities.

By a professional trustee assisting in all trustees meeting their obligations, such as having meetings, making decisions, looking after trust assets and correctly documenting and administering trust affairs, the chances of successful allegations of sham trust are decreased.

Whilst a mechanic isn’t legally required to carry out all car repairs, most people want to ensure their car is safe and so usually have a mechanic do repairs.

Not using a mechanic might save a few dollars but ultimately, could result in some nasty consequences. Having a professional trustee who carries out their functions is much the same – the benefits can far out weight any costs involved.

Individual trustees are often busy people, leaving little time to administer the trust under their control.

Additionally, just like many of us don’t know how a car engine works and wouldn’t know how to carry out car repairs, many people don’t know how to meet their trustee duties and how to administer a trust.

Remember, trustees are personally liable to all the beneficiaries of a trust and unfortunately, ignorance of their duties is no excuse in the eyes of the law.

Thus, DIY trust administration practice is not dissimilar to undertaking car repairs – savings on professional trustee fees may seem a great idea initially but those savings can be outweighed by the costs faced when a trust structure fails through DIY practice. Cheap can be expensive in the long run.

We have now just completed the end of the financial year and this is an ideal time for trustees to ensure trust administration has been done correctly.

It is also a good time to consider whether appointing a professional trustee is warranted.

Check out our Family Trust as well as our Professional Trustee section of this website for more information, or if you have a question or would like to speak us, please contact us now.  We're here to help.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

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P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Dear reader,

Thinking about and planning for our death is understandably a subject that most people prefer not to think about.

It comes as no surprise to us, because we see it every day, that many people just simply do not plan for what happens to their assets and estate when they die.

With a bit of thought and a small financial and time investment, we all have the ability to save enormous amounts of pain and money from being inflicted on the people we love after we’re gone.

Here are four estate planning issues to consider if protecting your future is important to you:

Don’t leave your residual estates to your spouses personally.

If your Will directs that your residual estate is bequeathed to your spouse you are in effect, adding to their asset base. This places assets at risk and also prolongs gifting programmes.

A better approach is to bequeath the residual assets of your estate to a Trust. Bequests under a Trust are free of gift duty restrictions meaning that the assets lie within the Trust without the need for them to be gifted.

The surviving spouse is then not burdened with the additional gifting programmes.

Not forgiving any ungifted loan balances.

If you have a Trust and you are conducting a gifting programme you need to make sure your Wills “tie in” with the Trust. This means that Wills should forgive any ungifted loan balance owed to you by the Trust. This brings gifting programmes to an end and prevents the surviving spouse from being burdened with extra gifting.

There is however an important proviso to this:

Make sure you have two Deeds of Acknowledgement of Debt – if you are to forgive any ungifted loan balance in your Will you need to make sure that you have separate Deeds of Acknowledgement of Debt.

One of the pitfalls we often see is joint Deeds of Acknowledgement of Debt. Where a Trust recognises a debt to two spouses jointly, on the death of the first spouse the survivor inherits the full gifting programme.

This is obviously not ideal and can be avoided if you have two separate Deeds of Acknowledgement of Debt and separately provide to forgive those under your Will.

Not thinking about the succession of your Trusts.

We often see Trusts established with the Power of Appointorship passing to a person nominated under their current Appointor’s Wills or to the executors of their estate.

Then we find that no such nomination is made in the Wills or our clients are unaware of the fact that their executors of their estates will assume this important power in respect of the Trust.

Therefore it is very important from an estate planning perspective to understand who holds the Power of Appointorship and how it is passed on. In our view the best practise is to have the Trust Deeds make it clear that a successor to holding the Power of Appointorship can be named in your Wills and name them there.

If you would like your situation reviewed, you can contact us and arrange an interview. It costs nothing to take the first step. We’ll make recommendations that will be easy to understand. And when set up, these structures will ensure that any surviving spouse or family members will not be unduly hurt.

To get personal help you can Request an Interview right now.

Congratulations!  You’ve scrimped, scraped and struggled. But you’ve managed it! Yes, you’ve got your foot on the first rung of the property ladder. Finally, you have a place of your own.

Just like a game of snakes and ladders though, you can easily slip down and even fall off that property ladder.

So ... here’s some tips on how to play the game – how to avoid the snakes that might just pull you down.

Step 1:  Fail in Business

One of the most common ways to lose your home is through business failure. This happens when a person borrows money to start or even purchase the business.

The lender (eg: the Bank) happily lends the money to the business owner but in return, requires security. Usually the borrower will put up their home as security.

When the business goes ‘bust’ and the borrowers can’t meet the repayment to the lender, the lender forecloses and takes the home.

Often this can be avoided. How? By simply getting good professional advice before buying the business.

Take for example Karen. She found a great retail clothing business in Auckland. Karen thought the business would do well and that she’d enjoy selling clothes. Trouble was, Karen didn’t have enough money to buy the business so she approached her Bank. The Bank lent Karen $90,000 and took her home a security.

After 4 months in business, Karen was at her wits end. It seemed to her that the more stock she sold the more money she lost. Worse still, she couldn’t afford to make her monthly repayments to the Bank. The Bank finally lost patience and repossessed her home.

Her friend suggested she approach a good Accountant and get some advice. When the Accountant looked at Karen’s financial data he found all sorts of problems, including the fact that Karen had purchased the business and all its stock at retail prices and was selling the stock at retail prices. No wonder Karen wasn’t making any money.

There were lots of other issues as well that was dragging the business down – issues that all business owners need to consider.

The moral of the story here is pretty simple. Get some good solid professional advice on the financial health of the business before you buy it. Sure a couple of hours of Accountant’s time might cost you a few dollars but that cost is nothing compared with paying over the top prices for a business and losing your home in the process of trying to make a dying business profitable..

Step 2:  Get Divorced or Separated

Samantha hadn’t had an easy time of it lately. Both her parents had died in the last couple of years and she felt quite alone. The only silver lining in the black cloud was that she no longer had to worry about money. Her parents had left her their house and their life insurance had paid off the mortgage so she had a pretty good start in life.

Black clouds don’t last forever. Samantha finally met the love of her life and she felt like the luckiest girl in the world when David asked her to marry him. Things went well over the next few years for them. They had two lovely children and sold Samantha’s old family home and bought a new one for them all to live in.

Then events started to unravel. First, David lost his job. Then when he got another job he seemed to work really long hours. Things became strained between them. Finally, David told Samantha he was leaving. If that wasn’t bad enough, David wanted the house sold and half the sale proceeds so he could purchase a home for himself.

Samantha didn’t think this was fair. The home they now had was mainly paid for by the sale proceeds she’d got when she sold her parent’s old home. David didn’t see it that way and the battle between the lawyers began.

Eventually, Samantha and David settled their differences in Court. The Judge ruled their home had to be sold and the sale proceeds had to be split 50 / 50. The Judge said that Samantha had ‘intermingled’ the sale proceeds she’d got from her parent’s old home to the point where those proceeds had become ‘relationship property’, which was to be split evenly between them.

The result of this sorry story was Samantha not only lost her marriage but in effect lost her matrimonial home and her inheritance from her parents.

How could this awful outcome have been avoided?

Well we aren’t in the business of marriage guidance but we do know that taking good asset protection advice and putting in steps to protect her parents’ home and the resulting sale proceeds would have saved Samantha’s inheritance.

Everyone who wants to protect their inheritenances should think about asset protection and the steps they need to take. And those steps need to be taken before trouble is on the horizon

Step 3:  Pay Rest Home Fees

Bruce and Julie had worked all their lives to build up their assets. They’d paid their taxes and tried to contribute to society. Bruce frequently helped his neighbours out doing odd jobs for them and Julie worked as a volunteer for the Blind Institute. They’d based their life on a simple philosophy – look after family and friends and help our where you can.

During their lives they’d done pretty well for themselves considering where they’d started from, which was ground zero. They had a nice house and were feeling comfortable with their lot. They’d been blessed with two children and now they even had grandchildren which they loved dearly.

At the age of 60 however, tragedy struck. Julie had a heart attack and died. The family rallied around and helped Bruce as much as they could. Two years later the family suffered another blow – Bruce got diagnosed with Alzheimer’s disease.

It was awful for everyone to watch as slowly Bruce forgot who they were. Eventually, the family had no choice but to put Bruce in a rest-home where he could get the care and support he needed 24 hours a day. Trouble was, rest home care was expensive – really expensive. $850 per week was what the rest home wanted and that didn’t include any extras such as taking Bruce out for day trips.

The family approached the Ministry of Social Development and requested a residential care subsidy be granted to Bruce. The Ministry told them that before Bruce was eligible for a subsidy, he had to use his own assets as they only granted subsidies to people who had less than $180,000 worth of assets.

This threshold of assets was a real problem. Bruce owned the house he had been living in and it was worth around $310,000. After much discussion, things were worked out. The subsidy would be granted the Ministry said. The downside to the solution was the subsidy would be treated like a loan. So when Bruce finally died, the house would be sold and the loan would have to be repaid back to the Ministry.

Bruce lived for another 6 years in the rest home. The total amount of his rest home care came to $265,200. By the time real estate agents fees were paid and the loan was paid back to the Ministry there wasn’t much left. – only around $35,000.

The sad part about this story is that Bruce and Julie would have wanted the house to have gone to their children. They’d worked hard to create a life and leave their children an inheritance and that had all been lost to the Government.

What could have been done to protect the children’s inheritances?

Well, taking some sound professional asset planning advice wouldn’t have gone astray. Putting the home into a Trust before Bruce needed care would have definitely have helped.

Anyone wanting to protect their assets and the inheritances they want to leave their children should take steps to implement an asset protection programme.

Summary:  What can you do?

Business failure, divorce and going into a rest home are common place events that happen in our lives. And these events are often beyond our control.

What we can have some influence over however is the effect these events bring about. Can we take steps to protect our assets and stop us losing our houses and inheritances?

In the words of President Barack Obama, “Yes We Can”. The very first step is to Request an Interview.  Getting some good advice and that advice is just one click away.

Janet Xuccoa BCom, LLB
Professional Trustee Services

Learn More about Janet
Contact Janet at jx@gra.co.nz or call
+64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Did you know you can learn more about Family Trusts and Watch Video on this subject?  Help Yourself.