Articles by Janet Xuccoa

I’M TELLING ALL !

After plenty of anxious moments and sleepless nights, I’ve done it. Yes, I have written a Book. “Family Trusts 101” has finally been born.

Trusts are never easy creatures to understand but I think this Book should help all New Zealanders comprehend the creation and administration of Family Trusts. In a way, it’s a ‘go to’ Book.

If you’ve ever been confused or frustrated about how a Trust is supposed to operate or if you’ve ever wanted to know the in’s and out’s of a Trust, then this book is a must read for you.

I’ve spent many days and months using my little grey cells to bring you a Book written in plain English. It’s an easy read, packed with great examples which will demonstrate the points I’m making.

You won’t need any previous knowledge to understand this Book as I’ve made a massive effort to ensure it won’t bamboozle you with legal jargon. So a word of warning should be given. If you are looking for a concise legal text on equitable structures, coupled with judicial dictum and ratio decidendi, then this Book is not for you!

If however you want a guide on Trusts, which covers the following points, then you should seriously consider buying this Book:

• How Trusts came to exist;
• What a Trust can do for you;
• Steps to take to place your assets into a Trust;
• What a gifting programme is;
• How Trustees should act;
• What a Professional Trustee can and should do for a Trust;
• Whether you need a Bank account;
• If financial statements should be prepared for the Trust;

And so much more.

I really hope you love reading this Book as much as I loved writing it.

Of course, this is the first of many Books so any feedback you wish to give me would be much appreciated.

The cost of this Book is $29.95 + GST + postage. To order your Book NOW please CLICK HERE.

To else see me talk more about my book on TV One's Breakfast Show Click Here

Happy reading everyone.

GREMLINS IN THE TRUST DEED
As you can imagine, we see lots of different types of Trust Deeds here at GRA. Despite there being a variety of Deeds around, there are some common provisions we like in all our clients’ Deeds of Trust. One of these provisions relates to decision making. I’ve been talking about this particular issue for about two decades now. Some people have commented I’m seeing Gremlins where there aren’t any but now, finally, we have a High Court case to prove this particular point. Gremlins can exist and when they come home to play, they can cost you big money. Read on to ensure you and your Trust don’t fall into this situation.

THE CASE
I won’t recite all the facts but the bare bones of the case are as follows. A Trust decided it wanted to purchase and develop some land. To complete the purchase, it needed to borrow funds so it approached a lender. The loan was duly granted and the legal papers were sent to the solicitor who was acting for the Trust. The solicitor called the Trustees together to sign the legal loan papers.

This Trust had 5 Trustees in total but only three of the Trustees actually turned up at the solicitor’s office.

The solicitor put before the Trustees the loan papers and gave them an explanation of the documents. It seems from the evidence given that none of the Trustees really fully understood what documents they were signing. They certainly didn’t appreciate the fact that they would incur personal liability for the loan. One of the three Trustees even went so far as to say that he just ‘assumed’ the documents must be ‘all right’ because his co-Trustees were signing them.

The loan was duly taken out and the land was purchased by the Trust. Of course there wouldn’t be a case if everything remained okay. But like a lot of things in life, things didn’t pan out as planned. The loan repayments weren’t kept up and the lender ended up suing the Trustees. This is where things got really interesting.

THE JUDGMENT
Remember I told you there were five Trustees in this Trust but only three Trustees turned up at the solicitor’s office and signed the loan papers? Seems the other two Trustees didn’t ever sign those loan papers. But that didn’t make them any less liable. Why? Because of the Gremlins in the Trust Deed.

GREMLINS AT PLAY
At the beginning of this article I said there were certain provisions we like all Deeds of Trust to have. One of those provisions is Unanimous Decision Making. What does this mean? Simply this. All Trustees, yes every single one of them, have to agree to a transaction before it can go ahead. If agreement cannot be reached, the transaction cannot proceed. Most importantly, one or the majority of Trustees cannot bind all Trustees, including the Trustee/s that don’t agree with the proposed transactions.

Why is having a Unanimous Decision Making provision so important in a Trust Deed? Well in the words of Associate Judge Doogue “... if a majority makes a decision, it must be the case that the minority are bound by it in all respects. Otherwise ... those dealing with the Trust could be confronted with a situation where some of the owners of the Trust property would agree to executing securities affecting their properties ... but the minority could defeat the contractual objectives of the parties by declining to co-operate.”


In other words, where there is a Majority Decision Making provision in a Trust Deed, enabling the majority of Trustees to bind all Trustees, including the minority, those that dissent must expect to be bound. The minority Trustees will be contractually bound and legally liable as if they had agreed and had signed the legal loan documents.

GETTING RID OF THE GREMLINS
What can you do to ensure you don’t have a Gremlin in your Deed of Trust? Try calling us to start with. Then let us review your Trust Deed. If you are not one of our existing clients and you bring in your Deed of Trust, we will often see you free of charge.

When we review your Deed of Trust, we will look for other provisions that we think should be in the Trust Deed. Provisions that will protect you and the assets of the Trust.

Most importantly, we’ll be on the look out for the Gremlins we know can lurk in a Deed of Trust. Gremlins that can cause havoc amongst Trustees and Beneficiaries.

We all know prevention is usually easier that cure. Prevention frequently saves us emotional heartaches and most importantly, money. So take some time now and send us an email or call us and let us check your Trust Deed.

All the best.

Janet Xuccoa BCom, LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +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. Check out our sister website, www.familytrusts.co.nz for more family trust information.

© Gilligan Rowe & Associates Ltd
Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Christmas is always a time for celebration but in my book, it’s also a time for reflection and some forward thinking. "What did the year bring and what will the New Year look like?" are often questions that cross my mind as I see one year out and another year roll in.

This year, we’ve all been touched by the global events that have faced our world. New Zealand is not an island that stands outside the global economy and we have truly felt the effects of the global recession at home.

The majority of our markets, including retail, property, tourism and exports have all taken a bit of a hit. The labour market has definitely felt the effects of the global recession and we all know how the finance / credit market has tightened and affected us personally and our businesses.

They say however, that every cloud has a silver lining and I think this is true with respect to the global recession we’ve all faced this year. Out of emergences, better people and better processes emerge. We set about the subject of learning and we start to think about how we can manage our lives, our households and our companies more effectively and efficiently. Often, we emerge and find ourselves in a much stronger position simply through having to focus on how to survive and build a better, stronger future.

Additionally, we frequently ask ourselves what makes us really happy. This is a very interesting question because it usually involves not only having enough assets and money to do the things we want to do, but it also encompasses having great relationships with our family and our friends. And to build those relationships we need time. So once again, we look at where and how we spend our time and how we can achieve closer relationships with those that we love whilst at the same time, meeting our work and business commitments.

As the Professional Trustee here at GRA I’ve seen lots of good things this year. In particular, my fellow Partners and I have pushed really hard to dig deep and gain an in-depth understanding of our clients’ needs and wants. This work has lead to us completing over 128 presentations throughout New Zealand in 2009 and to us developing some innovative products and services that have assisted our clients with the issues they have been facing. Some of these new products will be released next year and I just know our clients are going to find them very instrumental in helping them achieve their financial goals.

One of the biggest highlights for us as a firm and for me personally as the Professional Trustee, was being awarded the prestigious Corporate Trustee of the Year Award by the New Zealand Trustees Association. This was the first time in the history of the New Zealand Trustees Association that an award like this had ever been given to a Corporate Trustee and we took it home!!! That made me incredibly proud. And a little bit of pride is a good thing in my world because it makes us continually strive to deliver top notch service to our clients.

Unfortunately, I’ve also seen my fair share of friends and clients feeling pain and stress this year. Some of our clients’ businesses have been adversely affected by the recession and some have even suffered personal relationship problems. One person close to me didn’t cope well with the pressures the recession brought at all and sadly isn’t celebrating Christmas with any of us this year.

As a firm and as the Professional Trustee, we do our utmost to help clients when they face really difficult times and we try hard to help them make decisions in their lives that will either solve their issues or at the very least, help minimize their pain. As a human being I really sympathise and empathise with people who face difficult problems. I’ve lived long enough and been though enough life experiences to know that hardship can strike each and every one of us without warning.

So, I guess this year I can say I’ve seen the great tapestry of human life. I’ve witnessed the good and the bad. Throughout the year however one thing has remained constant in my mind. This one thing has come up time and time again when I have been presenting and meeting prospective clients.

Many people when they are enjoying life and events are going their way, do not pause to consider what could occur if life was heading in the other direction – southwards. As a consequence, they fail to keep their eye on the ball. They forget to strategise and plan and take steps to protect what they have worked so hard to achieve and gain. As a result by the time the horse has bolted from the stable and they are faced with difficult times, it is too late to put a plan into place.

So the one thing that I urge everyone to do over Christmas is take a moment. Think about this ...

A half hour discussion with us could be the difference between maximising your life and the economic opportunities available to you, or not.

The last thing I ask everyone to do over their Christmas break is enjoy and savour each moment. Think about giving and serving your family and friends. Be thankful. It may well be true that not everything has gone as planned this year in your life. Things may have been a bit hard and in certain cases, downright difficult. But there is a new year to plan for and if you have friends and family around you then you are very rich indeed in love and support. It’s these things I believe that give us genuine happiness and satisfaction.

On behalf of the Trustee Services Team and the Professional Trustee I want to take this opportunity to wish all of you the very best for Christmas. Christmas is meant to be a time for pure delight so fill each moment with joy and cheer. Savour this special time. Have fun with each other and have happy and safe holidays. Remember, it’s the memories that we create that we look back on. So, ensure the memories you are building are happy ones that you will be glad to treasure and pull out in the future and relive.

As always if you need assistance over the Christmas break you can contact myself, Janet Xuccoa, by telephoning 021 479 630 or you can telephone our offices on (09) 522 7955 and leave a message on our message service. This service is monitored. Lastly, you can send me an email on jx@gra.co.nz. When I’m not dealing with Santa and his Elves I’ll be monitoring my emails so will respond to you. Alternatively, you can call Juliette Egden, our Trustee Services Manager on 09 550 8054.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

In the last couple of weeks I’ve been honoured to be able to speak at a couple of events, attended exclusively by women. These events focused on issues relevant to women such as maintaining a “work-life balance”. 

I of course spoke about the issue of women keeping their eyes on the ball and looking after the moo-lah.  No one in their right mind would ever ask me to discuss a subject such as “work-life balance”. 

On occasions I’ve even had to look up the words to check their spelling so you can imagine I’ve got no conception of what the phase actually means.

Although in saying that, I did get a bit of balance in last night when I indulged in some Christmas cheer with a few of my own girlfriends.  We got around to discussing what had occurred at the women events I’d presented at and they suggested that I write a blog setting out my own thoughts about a couple of issues that had come out of these presentations.  This seemed an excellent idea after two glasses of red and by the time morning came around, the idea had stuck.  So here I am putting pen to paper.

Before we start, I want to be sure I’m shot by the Policitially Correct Squad so I’ll make this declaration up front:  the points I am raising in this blog can equally apply to both sexes and the views I am expressing are my own, based upon my own observations gathered from about 2 decades of practice.

So ... on the subject of money, here’s some things I’ve noticed over the years that are pertinent to women:

1.         Relationship With Money

Women often have a strained relationship with money in my view.  I’m not saying they don’t understand money.  What I’m saying is they seem to fall into two distinct camps.  They either really take the trouble to get to grips with the subject of money, where it’s coming from, where it’s going, money goal setting, investing, etc or they simply refuse to get their heads around the subject. In other words, there seems to me to be two mindsets – those that are truly interested in money and think of it as an essential economic good that they need to know about or those that adamantly refuse to deal with the subject at all.

Men on the other hand don’t appear to me to fall into two such distinct groups.  They might or might not be interested in the subject. They might or might not be good at managing money. They seem however not to have such strong feelings about the subject of money as I see women having.  In other words, they are much more laidback and ambivalent about the topic.  Summing it up, money for men doesn’t appear to be an emotional topic for them at all.

Of course the type of relationship women have with money affects how they actually deal with the commodity.

2.         Discussions About Money

This is a really biggie.  It affects not only how women deal with their own money but all sorts of other subjects, such as asking for a raise at work or asking their spouses what is going on in the money affairs department.  Women frequently seem to be backward in raising the subject of money. For some reason they seem shy and uncomfortable about discussing the topic. 

By way of an example, a women I spoke with last week was about to permit her boyfriend of 6 months to move into her home.  He had two ex-wives and 4 children.  She had no idea of what he earned, what assets he owned, what his commitments were to his wives and children and what money he would be contributing to what would become their joint household expenses.  When I asked her if she would be discussing these points with him, she said she ‘didn’t like to’. 

Now I just don’t get this.  She was about to permit someone to get really closely involved in her life and she didn’t have a clue as to what he was about financially.  That is just plain scary in my books.  How can you start to build a lifetime commitment with someone that you can’t discuss the subject of money about? 

Men I’ve noticed don’t seem to have much trouble talking about the green stuff with either their prospective partners or their employers.  As a result, they frequently get to grips with the views that their spouses and employers have on the subject and they then make decisions about their own behaviour accordingly. 

Of course not being able to raise and engage in a discussion about money leads women to either taking or advocating control of the coin which can have some really startling consequences.

3.        Working With Money

I guess it goes without saying that if a person isn’t interested in the subject of money and doesn’t feel comfortable discussing money then they aren’t likely to really work with money.  What I mean by this is that they will not feel comfortable asking questions and challenging another person’s viewpoint about what should be occurring with the moo-la.  Unfortunately, women often fall into this category. 

To illustrate my point I want to discuss the case that recently came across my desk, involving Jillian.  Her husband was running a bookshop which actually did pretty well financially. They always managed to pay their mortgages and they enjoyed a reasonable standard of living.  Jillian had always left the running of the business and their money to her husband saying he had everything under control.

Her husband wanted to get ahead as he put it and so he wanted to buy another bookshop.  Trouble was it would involve them getting a very big loan.  But Jillian didn’t want to appear unsupportive so she didn’t question him about things and just signed the loan papers that were put before her. 

She did feel a little uncomfortable about them borrowing such a large sum of money to buy the 2nd bookshop and she wasn’t that happy at the time at having to put their home up as security but she nevertheless went along with things.  She even gave a personal guarantee for the borrowings herself. 

They went ahead and purchased the 2nd bookshop but despite her husband’s best efforts, the business still wasn’t making money after 7 months of trading.   As luck would have it however, a distant relative died around this time and left Jillian $80,000.  Her husband suggested that Jillian put in the inheritance she had just received to help the business along and Jillian, again not wanting to appear unsupportive, agreed. 

Things just got worse.  Month by month the business lost more money.  The loans were unable to be repaid.  Jillian’s husband took action and did sell the 2nd bookshop but the sale proceeds they got were not enough to pay back the loans.  So he then sold the 1st bookshop they owned.  But still there was a debt left owing to the Bank.  So they then sold their home.  Of course being in a downward market, the house didn’t realise as much as they hoped and there was a debt left over that had to be paid back to the Bank. 

As you can imagine all these events put enormous pressure on their marriage and Jillian and her husband separated.

As if this wasn’t bad enough, letters from the Bank started to arrive demanding repayment of the money that was still owing.  Jillian went to the Bank and explained the situation. The Bank whilst being sympathetic told her that she would have to pay them and that if she didn’t, they would sue her under the personal guarantee that she had given.

Of course Jillian had no money and no assets and so that is exactly what happened.  The Bank sued and then bankrupted her. 

Jillian through not wanting to deal with the issue of money had lost her home, her ½ share in the 1st profitable bookshop and her inheritance.

4.         Responses To Money Troubles

In my previous lifetime I use to head up a team at a Bank.  One of the functions of that team was to deal with customers who were defaulting on their loans.  And this is where it gets really interesting.  When the loan was in a joint name, it was usually the women who picked up the telephone and called to find out what was happening and how the problem could be worked through. 

From the couple of years work that I did in this capacity I had to draw the conclusion that when money troubles were on the horizon, women were more inclined to take the bull by the horns and move into ‘clean up mode’ as I though of it. 

I never really did come to understand why it was the fairer of the sexes that tried to sort things out when they’d gone bad especially given the fact that these very same women weren’t at all involved in the decision of where the money went in the first place.  Perhaps this is just one of the mysteries of life I’m going to have to live with. 

The point that I’m making however is women are good at cleaning up money issues but frequently woeful at dealing with the set up of the monetary situation.  If they were more involved and better at the inception of the money decisions, the money troubles may never come home to roost.

5.         Solution

Millions of books have been written about it and loads of money has been made from the subject over the years.  It’s called “Communication”.  That’s the only solution to dealing with money.  Quite simply, you have to sit down with yourself and explore how and why you feel a particular way about the subject.  Then, assuming your financial future is tied up with a nearest and dearest, you have to get down to the nitty gritty, take a deep breath and talk to your spouse about the subject.  You can do it in a non-threatening way. You don’t have to argue about the subject.  You can even agree to disagree.  But you do have to talk.

Once you’ve explored your reaction to the subject and your spouses reaction, you have in my opinion, a really good base from which to grow.  You see a little acorn of knowledge can lead to the growth of a whole tree.  And whilst you’re busy planting, you will start getting comfortable about the subject.  Which in turn will lead you to asking questions and finding out more about the fruits of the tree, including how to look after what the tree is producing.  Which leads me to my last point.

For all those women either in business themselves, or those who have their financial future tied up with their spouse who is involved in business, ensure you get good advice.  You don’t have to put all your assets at risk.  Nor do you have to lose all your assets, including your inheritances, if the business goes bust.

An ounce of prevention is worth a pound of cure.  Get advice.  Get protection.  Get the right structure.  Look at what amount of money is being borrowed and by what entity.  Think about and decide who should be directors and shareholders.  Review who is going to give personal guarantees.  Seriously consider putting in place general security agreements in favour of yourself.  In all circumstances, understand what is going on and feel comfortable about what you are legally agreeing to.

Your goal in life is to minimize your exposure and to protect what you have built up.  Don’t let your own feelings of being uncomfortable about the subject of money be your downfall.  Get advisors around you who help you feel relaxed about the subject.  And if someone is trying to make you feel inferior or unsupportive or just plain incompetent about the subject of moo-la, then take a step back – that’s their issue not yours.

The only dumb question in life is the question you don’t ask.  So as always, get the right people on the bus, sitting in the right seats to help you. And of course it goes without saying, I’m one of those people who are happy to help you.  I

I’d much sooner be pro-active and help you plan your financial future than be the ambulance at the bottom of the cliff, cleaning up the damage.  So if in doubt, please request an interview or contact me.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Life has a great way of teaching us lessons and one big lesson I’ve learned is this - if you get the right people on the bus, sitting in the right seats, life just flows a whole lot easier.  So, what’s this lesson got to do with Trusts?  Well simple really.  If you are going to set up a Trust, then you should do it once and do it right.  Usually this means calling in the specialists who can give you appropriate advice, pertinent to your particular circumstances.

 
In my book a task that a specialist will always have is to ensure their knowledge is up to date.  After all, you don’t build a rocket ship using old technology so why would you help a client build a foundation for their financial affairs, working from outdated knowledge?
 

Lots of professionals forget this and they fail to do their bedtime reading much to the detriment of their poor clients. Sure we are all busy but we need to keep up to date and if that takes us a few hours reading a week then so be it.

 
Which brings me to the whole point of this blog.  A court decision was released early this year.  Since its release there has been substantial debate and much written about what the decision means in the legal beagle world.

One particular point from this case however seems to have been overlooked and I think this point is really crucial to all those who have Trusts.

The Facts

 
Mr R was the Settlor of a Family Trust.  Mr W and Mr H were the Trustees.  The Trust purchased a property which we will call the 1st Property.  In order to be able to afford to buy this property, the Trust borrowed from the Bank and Mr R gave the Bank a personal guarantee for the borrowings.  A little while later the Trust sold the 1st Property to Mr R. Mr R then entered into an Agreement on behalf of the Trust to purchase another property for the Trust.  We’ll call this the 2nd property.  In order to buy this property, the Trust would have to borrow very heavily.  Mr R then decided to sell the 1st Property but he didn’t manage to achieve a sale until after the Trust had completed the purchase of the 2nd Property and until after he had been declared bankrupt.

The sale proceeds derived from the sale of the 1st Property went towards satisfying the Bank borrowings which had been raised in order to purchase the 2nd Property.

The Argument

Before we start on the legal argument, I need to tell you about someone called an Official Assignee or “OA” for short.  This is a person who legally steps into your shoes if you are declared bankrupt.  They will be entitled to run your affairs, sell your assets and pay off your liabilities.  There are some strict rules about what assets they can sell and what liabilities they can pay.  Overall, the main aim of their game is to liquidate assets to repay creditors.  In my view, anyone facing the prospect of bankruptcy should immediately seek professional advice,  before they visit an OA’s office.

Back to the argument of this particular case.  The OA said the Trust had not been well administered and was a sham or was the altered ego of Mr R.  Of course what the OA wanted was the 2nd Property, which consequently was the only asset the Trust owned.  If they could prove the Trust was a sham and the 2nd Property really belonged to Mr R, then they would be able to seize the property, sell it and apply the sale proceeds to repay the creditors.

The Legal Decision

The case was initially heard by the High Court who dismissed the OA’s claim.  Then the OA appealed to the Court of Appeal who also dismissed the appeal.  In other words, the OA plain ran into a brick wall with its claim that the Trust was a sham or the altered ego of Mr R.

Lessons For Us To Learn

Irrespective of the great specialists sitting on your bus, no one wants their bus to have to travel to Court.  Going to Court is an expensive exercise and I don’t just mean in monetary terms.  Litigation is emotionally draining and because it can take a couple of years to get through a case like this, it can really take its toll on not only the bank balance but also the human relationships you are involved with.  So as my old grandmother use to say ... an ounce of prevention is worth a pound of cure. 

What this means for us is that we need to take steps to avoid accusations that our Trusts are shams.  And we don’t just take steps to avoid sham trust allegations so that the Trust assets stay safe.  We take these steps to avoid personal liability.  Remember ... Trustees are personally liable and you don’t want other Beneficiaries suing you if you lose the assets of the Trust.

So what specific steps can we take to avoid sham trust allegations?  Well here’s 9 things you can do to ensure your Trust is ship shape and up to date:

1.       Review financial statements prepared for the Trust against the Minutes, Resolutions, Deeds and Agreements you are holding on the file you have for the Trust.  If you don’t have financial statements, get them.  They are the backbone to any Trust and are surprisingly inexpensive for Family Trusts.

2.       Make a list of any Resolutions that are required and complete these.  Usually you will at the very least have year end resolutions to prepare and execute.

3.       Ensure all loans made by yourself to the Trust and those made by other parties to the Trust are evidenced in Deeds of Acknowledgement of Debt and Variable Interest Loan Agreements.  It goes without saying the Deeds need to have Hawkins and Entrenchment clauses in them to protect these loans from being called up by say a Creditor or the OA..

4.       If the Trust has made a loan to you, look to see if a Deed of Offset is appropriate, offsetting what the Trust owes you against what you owe the Trust.  This could help for example in reducing the balance the Trust owes you personally, consequently reducing the number of years it takes for you to gift.

5.       Check to see if your gifting is up to date and that you are gifting off of current balances.  Look at the financial statements in this latter respect.

6.       Ensure all the Trust Registers are current.  This includes the Registers for Professional Contacts, Assets and Liabilities, Beneficiaries, etc.

7.       Go over the Estate Plan.  Is the Memorandum of Wishes and Wills up to date given your present circumstances?  Does it have all the necessary clauses?  Look at my previous blogs or talk to me about this is you have any doubts.

8.       Have a look at insurances.  Is your life insurance policy assigned to the Trust?  If not, get hold of your broker and get it sorted.  Is there enough insurance in place?  If not, talk to a broker about your needs.

9.       Write a Plan For Death – see my previous blog on this particular subject for guidelines. 

Get A Professional Trustee On The Bus

Sometimes, despite our best intentions, we just don’t get round to doing the things we know need to be done.  Even if we have the time, some work is better done by the specialists.  So, if you need a hand putting into effect the above 9 steps, now is the time to put a Professional Trustee on your Bus.  And if you already have a Professional Trustee sitting on your bus, now is the time to put them to work.

As always, if this Professional Trustee can help you, please contact me.  Have a great month and enjoy the build up to Christmas.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Dear Clients & Friends,

Recessions bring about all sorts of changes. For example, in the legal world  people stop purchasing houses, so lawyers often run out of conveyancing work.

Conversely, money starts to get tight so people start to sue each other. This of course means extra litigation work for the lawyers.

Recessions can also bring about some pretty dramatic personal life changes. For instances, people can be made redundant which in turn, creates financial pressure. Often sadly, this pressure spills over into their personal relationships.

Sometimes, facing financial pressure can bring a couple closer as they bury down in the trenches together. But often, the strain can lead to a couples’ relationship breaking down. When this occurs, people separate. We know this because in ordinary times about 42% of Kiwis do just that – separate.

When a couple separate they usually divide up their assets. If their assets have been placed in a Trust the inevitable question arises: What happens to the assets in the Trust? This question is of great importance because when a relationship breaks down, there can be a lot of fighting happening and frequently the only thing left standing is “The Trust”.

An Ounce of Prevention is Worth a Pound of Cure

First, before assets are placed in a Trust, all individuals should obtain good legal advice. This is absolutely essential in my view because when assets are moved from an individual to a Trust, an individual’s property rights are affected.

Secondly, the legal advice obtained by the parties will usually include a very strong recommendation for the parties to enter into a legal Property Relationship Agreement. Again, in my view, this is essential because it will set out the basis for future reference. Should a relationship breakdown after the assets have been transferred through to the Trust, this Agreement will become invaluable.

The individuals will be saved a huge legal bill as they will not have to go to Court to argue over the assets. Additionally, and most importantly, those same individuals will not have to suffer the enormous emotional burden going to Court places on a person.

Thirdly, an actual Agreement should be entered into between the parties. This seems almost a moot point considering we have just discussed the absolute need for the Agreement but you would be surprised how many people talk about getting an Agreement but never actually do it.

The Agreement, if prepared and executed, is likely to set out a variety of matters including an acknowledgment of what assets belong to each of the parties before those assets are transferred to a Trust. It may also set out what will happen to those assets when they are transferred through to a Trust should the parties ever separate.

Lastly, if an Agreement has been entered into by the parties and assets have subsequently been transferred to the Trust then the issue is pretty easy. This is of course providing the Agreement stated what was to occur should the parties ever separate. The Agreement is just placed before the Lawyers and hopefully everyone can agree to implement what the Agreement says.

In the normal course of events what this means is the assets of the Trust are sold, loans are repaid and the balance of the sale proceeds are put into the Trust’s bank account, ready for division between the parties.

Often at this point in time the existing Trust is made into one of the individuals own Trust and another Trust is set up for the other remaining party. So in effect, each of the parties ends up with their own Trust.

Then half the sale proceeds are sent to the new Trust and the other half of the sale proceeds simply remains in the existing Trust (which was previously turned into one of the individuals Trust).

Two is Better Than One

It’s no secret that many smart people have two trusts. One each. Each Trust will hold its own assets and frequently a half share in the family home. Why have two Trusts rather than one? Again the answer is simple. If you have two Trusts you have the ability to deal with property that was solely your own before it went to the Trust. This could include family heirlooms.

Also, your own Trust can be the recipient of any inheritances you might receive, such as money from your own Parents. Overall, having your own Trust means you can deal with the assets in the Trust as you and your Trustees wish. You can do this without the consent of your spouse (assuming they are not your Co-Trustee).

Lastly, a very large advantage of having your own Trust is you then have the ability to leave particular assets to specific beneficiaries such as children you had prior to your relationship.

As mentioned above, another great benefit of having two Trusts is that both Trusts can own a half share in the family home. When two Trusts are involved they are also very likely to have entered into a legal Agreement which would have set out the steps to be taken if the parties ever separated.

So overall, a two Trust structure is frequently far superior to one. You do have to be aware that you will have double the set up and running costs of course, but this disadvantage can be far outweighed by the benefits a two Trust structure can confer.

When You Dont Prepare...

Here’s where all the trouble begins. The parties don’t ever enter into a legal Agreement and cannot agree on what is to happen with the assets that are in the Trust.

When this occurs only the lawyers win as the battle royale begins and legal fees start to mount. When I see this happening I call both clients. I try to give them a bit of a reality dose. This includes reference to the movie “War of the Roses”. If anyone has ever seen this movie we all know who the winners are and that is the Lawyers. A couple can spend literally thousands of dollars in legal fees as they fight over the assets of the Trust. Let’s face it ... a house worth say $500,000 isn’t worth a couple spending $100,000 on legal fees fighting over.

Often, when you look at what is really going on, the individuals aren’t fighting over the house at all. They are fighting because they are hurt. The trouble is, that fight costs lots and lots of money if it goes on for a long period of time. It is also emotionally draining.

I’m not advocating that an individual shouldn’t engage lawyers when and where they are needed. All I’m saying is a little common sense needs to prevail in these situations. As a Professional Trustee I try hard to calm the parties and seek some form of agreement that I can send through to their Lawyers.

But if you can’t get an agreement, then what happens? Well the matter just has to go to Court. Which means the Courts look at how the Trust was established, how the Trust has been run over the years, who has control of the Trust, what assets have been transferred to the Trust and what loans the Trust owes back to the individuals.

Other matters can also come under scrutiny but in the main, these are the points the Courts will look at. Once the Courts review the matter they may make a variety of Orders. These can include putting an independent person in to run the Trust (act as a Trustee) as well making a monetary award.

I guess there are 3 main points to take from this article.

1. Get great Trust advice when setting up a Trust from a professional who really understands asset protection, estate planning, tax minimization and financial accounting. Get the very best advice you possibly can.

2. Seriously consider a two Trust structure and if you do decide to go down this route, make sure both Trusts have a legally binding Agreement as discussed above.

3. Get good solid legal advice and enter into a legal property relationship agreement.

Remember, if you want your assets to be protected, use a Trust. But do the right thing ... get the right advice, from the right people and chose the right Trust structure to ensure that asset is truly protected.

If you would like advice about setting up or reviewing a family trust, please contact us for a free interview.  The best time to put structures in place is now.

Thank you for reading this,

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

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

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

Hello Everyone,

This week I had an interesting conversation with two individuals who had received some really poor advice from their advisors. This advice has cost them dearly in terms of the assets they are about to lose. But the rot doesn’t stop there as the loss of their assets will have a long term effect – it will most definitely deprive their children of their inheritance.

[By the way the lessons from this story will be covered in my next upcoming Auckland seminar entitled "Family Trusts Tips & Traps" ].

The story goes something like this ...

Mr and Mrs Smith were offered a business opportunity which they decide to take up. Before they did so, they approach their advisor who told them to set up a Trust and move their family home into the Trust. This would of course bestow asset protection upon the home the Smith’s were told. And the Smiths being sensible individuals relied on that advice.

A Trust was duly set up and the Smiths sold their family home to that Trust. Because the Trust did not have any money to pay the Smiths for the home, the Trustees gave the Smiths an IOU – a Deed of Acknowledgment of Debt in legal speak.

At this point the first error was committed. There was no Hawkins or Entrenchment clauses in the IOU and we all know what that means. Just in case you don’t however, don’t worry. We are going to tell you because this would be one of the largest mistakes we see when Trusts are set up and IOU’s are given out.

The Smiths were then told to enter into a gifting programme and to forgive $27,000 of the debt each and every year that was owed to them by the Trust. Again, the Smiths being the sensible individuals they were, relied on that advice. They were also under the impression that their advisor would take care of preparing the gifting documents for them on an annual basis. After all, it was the advisors job to do this.

At this point the second error was committed. The advisor didn’t run a computerised gifting programme. That advisor simply ran a paper spreadsheet. Unfortunately, the other member of their staff, who was also responsible for completing Trust work, also ran a manual paper spreadsheet. Neither the advisor nor the staff member had regular Trust Department meetings so neither of the spreadsheets were ever checked to ensure that all clients actually got put on to a spreadsheet. Truly a recipe for disaster!!! As it turns out, clients gifting was often missed because they were never noted on either of the manual spreadsheets.

If the above two errors weren’t bad enough a third error was committed. It was this error that was truly fatal for the Smiths.

The Smiths business venture was really going well so they decided to sell their house and get a bigger one. This did mean they would have to take on a bigger mortgage but because the business was prospering, the thought of a larger loan didn’t bother them. So they instructed their advisor to attend to the conveyancing of the property. Once the house was sold, the sale proceeds were placed in the Smith’s personal bank account. We all know the danger of this, but just in case you don’t worry. We will tell you and we’ll do this because this is another very, very common mistake we see.

After the house was sold, another business opportunity came up in connection with their existing business. This opportunity however would require the Smiths to move overseas for a couple of years. They decided to take up this new business venture, so delayed buying another house. They were unsure about what they should do with their Trust so they called their advisor.

The advisor told the Smiths to put the sale proceeds they got from their home on term deposit and that there wasn’t any further need to gift as they were now heading overseas. Therein lies the nail in the Smiths coffin unfortunately but the Smiths, holding the view that their advisor knew what he was talking about, relied on that advice. They did indeed put the sale proceeds in a term deposit account held in their personal names and they did indeed stop their gifting programme.

All went well in the lives of the Smiths for about two years. But then the market turned. Their business overseas went into liquidation. They returned to New Zealand to find the manager they had left in charge was not coping and to make matters worse, the market in New Zealand had also changed. What was once a profitable business, was now in the red. Rather than producing money each and every month, all it produced was more debt.

The New Zealand business duly went into liquidation, leaving a sizeable debt owed to the Bank. At the time when the Smiths originally purchased their New Zealand business they gave a personal guarantee to the Bank. But don’t worry – the Bank got paid in full!!! How? Easy. The sale proceeds on term deposit were held in the individuals personal names so the Bank simply applied the guarantee against those proceeds and took them, crediting those monies against the monies the New Zealand business owed them. We’ve told everybody for years how to handle the Banks. Don’t worry if you are unsure about this point. We’ll gladly tell you because this is probably one of the largest traps people fall into.

How could all of this been avoided? What does this have to do with stopping the gifting programme? How do you handle the Banks?

To find out the answers to these questions and the ones we’ve highlighted above, simply come to my next seminar called “Family Trusts Tips and Traps”.

Go on - Register Now. It could save your assets – even if you don’t go into business!!!

All the best, Janet.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.

You’ve worked hard for what you have and to ensure your assets are protected, you’ve gone to the trouble of putting them in a Family Trust. Now those assets are protected for you and your loved ones – for the Beneficiaries of the Trust.

But what happens when the Beneficiaries want the assets? Can your children or say other Beneficiaries, such as your siblings, get access to those assets? Can they find out what’s in the Trust and what they’re entitled to? Are they entitled to know all about the Trust and its affairs?

Unfortunately, human nature being what it is, this issue comes up more than most people would like. Usually, like all human being issues, feelings of suspicion, distrust and jealousy underline the problem. And just like a lot of issues, responding to the problem in either a confrontational manner or limiting the communication between Trustees and Beneficiaries doesn’t help.

What is helpful is understanding what information Beneficiaries are entitled to and then, having an open dialogue with an aim of improving matters – maybe even improving the relationship which is frequently at stake.

The Courts Decide

Traditionally, what a Beneficiary could and couldn’t see was based on whether they were a Fixed or a Discretionary Beneficiary. Fixed Beneficiaries had an entitlement to the assets of the Trust and so had a right to view all Trust documents, including financial accounts. Discretionary Beneficiaries on the other hand, had only an entitlement to be considered by the Trustees when those Trustees were handing out cash, capital and assets. As such, Discretionary Beneficiaries had no entitlement to view Trust documents.

Thankfully, we moved from that position. Now it doesn’t matter if a person is a Fixed or a Discretionary Beneficiary because now, it is up to the Courts to determine what documents a Beneficiary is entitled to see.

Under the ‘inherent jurisdiction’ approach a Court says it has the ability to supervise and if necessary, to administer a Trust and therefore, a Beneficiary has a right to approach them to seek disclosure of Trust documents. Ultimately this means that it is up to the Court’s to determine what a Beneficiary can and cannot see.

Courts are mindful creatures. They implicitly understand human relationships – after all they deal with human issues every single day. With this understanding, they exercise their discretion and engage in a bit of a balancing exercise. They weigh up the competing interests of different parties (eg: trustees and beneficiaries and third parties) and consider a myriad of issues including personal and commercial confidentiality, parties privacy, consequences of disclosure, etc.

Additionally, they are aware that Trustees do not have to disclose to Beneficiaries their reasons for exercising their discretionary powers. This point is particularly important because it can have an effect on what the Court’s ultimate decision is – what the Court will decide a Beneficiary can and cannot see.

Sometimes, at the end of this balancing exercise, the Courts decide that disclosure should be limited and safeguards should be put in place. Often this is to protect the relationships within the family.

Look What The Beneficiary Found

In the past, the Courts have said the types of information listed below should be disclosed to Beneficiaries. Remember, each case is decided on its own merits so the items noted on this list are not set in concrete.

* Deeds of Trust;
* Deeds of Variation of Trust Deed provisions;
* Deeds of Changing of Trustees;
* Deeds of Resettlement;
* Legal opinions relating to the interpretation of a Trust Deed’s provisions;
* Legal opinions with respect to a Beneficiary’s rights;
* Valuations of assets of the Trust; and
* Financial accounts of the Trust.

Some Secrets are Better Left Just That – Secret

Historically, under case law, Courts have said that Beneficiaries do not have a right to the types of information I have noted below. Read this list with the above Caveat – Courts can decide something different depending upon the facts of the case before them.

* Letters from Settlors to Trustees;
* Notes from Settlors to Trustees;
* Memorandum of Wishes made by Settlors;
* Notes made by Trustees setting out their reasons for the decisions they have made; and
* Statements which show the motives of Trustees.

Raiding the Trust

So the big question is now that the Beneficiaries have the financial accounts in their hands, what can they do with that information? Well, one common tactic is they can apply to the Courts for an Order, which would state that monies due and owing to them are in fact, paid to them. For this reason, it’s important to deal with the allocation of Trust income each and every year.

Any income that has been allocated to a Beneficiary and shown as such in the financial accounts may be called by that Beneficiary to be paid to them upon them becoming adults. A Court Order can also require this. Hence, in my view, only income that is to be spent on a Beneficiary should be allocated to them in the Trust’s financial accounts. Failure to allocate income in this manner may result in a Beneficiary requiring a Trustee to pay them the surplus income that appears as a credit in their Beneficiary account shown in the financial accounts of the Trust.

Summary

Like all human problems throughout time, good dialogue can solve the insurmountable. This is because open communication fosters goodwill and trust between people. If goodwill and trust exists, there is less of an opportunity for secrecy and distrust to creep in.

Trustees and Beneficiaries are human beings and human beings respond positively to people being honest and clear with them. So the order of the day is to seek opportunities to promote positive communication between each other.

In my view, it is really irrelevant whether a Trustee has to legally show a Beneficiary a Trust document or not. If a Beneficiary has had to approach a Court to get an Order to see the Trust documents, the relationship between the Beneficiary and the Trustee is in trouble and that is where the real problem exists.

Being clear and honest with Beneficiaries when they ask about a Trust’s affairs is a sensible thing to do as it preserves the relationship. Failure to do so will simply create suspicion and exacerbate tension. Remember ... a Trust, is about relationships and about looking after assets for the future. So in the name of Trust, taking time to care for relationships and teaching Beneficiaries about money, assets and protection will ultimately ensure the future that you are working hard to provide for is kept secure.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +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.  Check out our sister website, www.familytrusts.co.nz for more family trust information.