One of the most common private and business ownership structures in New Zealand, is a Discretionary Family Trust.
The advantages of them are broad and flow across asset protection, estate planning and taxation benefits.
GRA have a division dedicated to forming and managing Family Trusts.
We utilise internal resource and where necessary external law firms as required to set up and support our clients as required in this area.
Typical structures GRA create will see:-
The family home in a Family Trust
The shares of private companies for business activities held in a separate Trust, to shelter the home from potential guarantees required of shareholders by the trading company
The use of GRA's independent Professional Trustee, spearheaded by Janet Xuccoa as lead partner in that division;
Term life insurances transferred to the Trustees to hold for beneficiaries interests, - sheltering the life policies from gifting and risk exposure;
New Wills done holding the Trust as the beneficiary of our client's estates, to shorten gifting and ensure wealth ends up in the Trust, protected after death and held for the beneficiaries interests;
Preparation of a Memorandum of Wishes ( MOW), where under our clients describe to the Trustees what they wish to have happen after death. Generally we recommend separate Trusts be spawn for the children or final beneficiaries, so that the wealth passed through is sheltered from matrimonial ( relationship) property claims and creditors.
We further recommend that clients specify and age by which children must achieve, before they become entitled to such trust fund, - and encourage such age to be when the children have matured. A 21 year old with $1m+ inheritance is not in our view ideal, - most 21 year old children become spoiled with an early inheritance and squander it, later to regret not being more frugal.
We in fact recommend 30 as the specified age for distribution to occur, leaving your children until then to mature and grow a respect for the value of capital and wealth. While a personal matter that needs to be tailored to a client's affairs, generally our view is later ( 30+) is better for inheritances to flow through, as part of someone's financial education is growing up poor.
Provision for control of the trust should be thought through, carefully. We recommend that you do not leave your lawyers and accountants in charge of your Trust fund, running your estate ( as executors) or appointors ( the person with the power to appoint and remove Trustees).
We call this the 'gravy train', and there are many examples of accountant and lawyers that we have seen in our time in practice where accountants and lawyers have been slow to manage client s affairs they have such control over, or over charge for the management, and the beneficiaries can do nothing about it.
Control should vest to the final beneficiaries jointly in our view, such that the children ( or whomever) can change accountant and lawyer to whom they wish, especially if the professional is not performing or overcharging.
When setting up a Family Trust, you have the option of having an independent trustee as a trustee in your Trust. This is a person or entity that is not a beneficiary in the Trust, that votes on Trust decisions and gives guidance on activities of the Trust.
While it not necessary to have an independent Trustee to have a valid Trust (you can technically be a one person Trustee and Settlor, with yourself and one other as beneficiary and have a valid Trust), we strongly recommend you do have an independent Trustee.
We also recommend it is a person of sound character and sufficient maturity that they can take the task on properly discharging the duties required of such persons, in order to ensure the Trust is not viewed by a court as a sham.
Utilising professional independent Trustees in your Trust is something that GRA recommend as best practice. In short, the law is moving towards supporting the position that the inclusion of an independent professional Trustee, makes your Trust extremely robust and difficult for a creditor or a spouse to attack as a sham.
Recent (2008 and 2009 cases) in the high court and court of appeal ( which we are happy to supply on request, including Wilson v OA and other cases) show judicial flavour supports the position that a having a lawyer or accountant in your Trust as your independent Trustee, - voting on decisions and minuting meetings, makes your Trust very strong.
Typically you hold the power of appointment ( the power to fire such independent Trustee), so you do not need to fear losing control of your assets to a third party. Moreover you can change the Trustee easily using such power if you change professional firms.
On death you can Will the power of appointment to your final beneficiaries jointly ( or individually), giving them full control over your Trust.
At the time of writing, GRA are professional Trustee in over 1500 trusts in New Zealand and provide routine support daily to Trust clients over:-
* Documenting transactions in minutes
* Making investment decisions
* Holding AGMs
* Jointly holding assets on Trust for the beneficiaries
* Setting up estate plans, including drafting Wills and memorandum of wishes.
Professional Trustee Fees
With the benefit of the security of a professional Trustee comes the cost of its professional services. Typically we charge a fixed fee annually for our membership of $300+ GST every January, and on top of this on a time and cost basis at a rate of $300+ GST for other work.
Buying a new property for example might cost $300-400+GST. In return, you get strong record keeping, governance, and your Trust is safe.
Click below to request more information about our Professional Trustee Service.
Summary on Family Trusts
Setting up Trusts and running them is a very personal thing, that needs tailoring and advice as to the asset protection, estate planning and taxation ramifications. Governance and succession after death of who controls and runs the Trust also needs careful attention. GRA help many Kiwis with all aspects of this process and invite you to contact us for assistance in setting up and running such structures.
Click below to request an interview on setting up Family Trusts.
Typical Family Trusts Structure For Salaried Property Investor.