Do you have a family trust? Thinking of forming one as a way to future-proof your assets for you and your children? The Trustee Act is getting a makeover. While there are still a few parliamentary hurdles to jump, now's the time to get your head around what the new bill will mean for you and your business.
In a nutshell
A new Trusts Bill was introduced to Parliament in August 2017 – the first big change to New Zealand's trust law in more than 60 years. With up to 500,000 trusts operating in our country, they are an essential part of our legal system but the current legislation is no longer cutting it.
The current Act:
Narrow in scope, expensive and too complicated.
The proposed bill:
More efficient, better guidance for trustees and beneficiaries and easier to resolve disputes.
What changes will affect my business?
Extending perpetuity laws
At the moment, when you set up a family trust, it has a time limit of 80 years. Then you have to wrap it up and distribute the assets. The new legislation suggests extending it to 125 years, which may involve significant succession planning adjustments.
More information access for beneficiaries
The Trusts Bill proposes to give most trust beneficiaries the legal right to financial reports on the state of the family trust – meaning they'll be able to request more information including 'who's getting what'. Whether beneficiaries have the right to request this information under our current law is a bit of a grey area.
Because this potentially opens a can of worms for trustees, this proposal has been controversial and has attracted a lot of feedback from trust advisers. We will have to wait until later in the year to see what changes (if any) are made to this proposal.
How will the Act change my role as a trustee?
Up until now, a trustee's job description has been clear as mud with many families getting into strife unaware of their trustee's responsibilities. If the new bill comes into place, a trustee's role will be clearly outlined, and include:
- Knowing the terms of the trust
- Acting according to the terms of the trust
- Acting honestly and in good faith
- Acting for the benefit of the beneficiaries or the permitted purpose of the trust
- Exercising trustee powers for a proper purpose.
I have a family trust, what do I need to do?
Get your paperwork in order: Document your trust actions carefully (if you don't already) and make sure they're accurate.
Revisit your succession planning: Talk to us to make sure your succession plans still make sense if this legislation goes through.
Review your trust: There might be opportunities to improve your tax structure, reduce your risk profile and better your family's financial situation.
Know your CRS obligations: New Zealand uses the Common Reporting Standard for the automatic exchange of information (AEOI) to help tackle global tax evasion. This means Reporting New Zealand Financial Institutions (NZFIs) have new IRD obligations, so you'll need to know if your trust falls into this category.
Join us for coffee! A quick, pain-free chat now (about all of the above) could save mountains of paperwork, and headaches, down the track. Give us a call, email or book a meeting time.
Is a family trust right for me?
Family trusts are a popular way to protect and manage your assets, such as the family home, for you and your family, now and in the future. They can have a valuable role to play, but they're not suitable for everyone. Here are the pros and cons of family trusts to help you decide if it's worth investigating further.
Five good reasons to form a family trust
- Protect your assets against claims and creditors in the event of business failure or a lawsuit.
- Set aside money for special reasons, such as a child or grandchild's education.
- Ensure your children, not their partners, keep their inheritances.
- Protect your children from squandering assets or falling prey to financial scams before they've gained sufficient life experience to make sound decisions.
- They have a life of up to 80 years (or 125 years under the new bill) unless it's wound up and distributed earlier.
Three disadvantages of setting up a family trust
- Transferring your personal assets to a trust means you lose complete ownership and it will be the trustees' responsibility to control them.
- The time and cost involved in setting up a trust and meeting its annual accounting and administrative requirements.
- Disgruntled beneficiaries have the power to sue trustees where trustees have acted in breach of trust. While it's not common, it is happening more often.
Get professional advice from the start. We can answer any questions you have about trusts, being a trustee, administering a trust deed, and the proposed new Act. Contact us today to book an appointment to meet with us.