There are many types of trusts that can
be tailored to achieve a specific purpose. The general purpose of a trust is
to protect your assets and provide for desired succession planning for future
generations. A trust is created by a trust deed whereby a person (the settlor)
transfers property to the trustees of the trust. The trustees control the
property in accordance with the trust deed for the benefit of the
beneficiaries (which can include the settlor).
This article focuses on four types of trusts that are commonly used within New
Zealand. These include family trusts, inheritance trusts, business trusts and
Family trusts: A family trust is generally set up by a couple that have
combined assets such as a family home, investments, etc. for the benefit of
the next generation. This type of trust can provide income and capital
benefits to its beneficiaries who can be (including but not limited to) the
settlor(s) themselves, their children, grandchildren, parents or other trusts.
The benefits of a family trust are:
* to assist in protecting family or a family business from potential
relationship property claims or someone contesting a will;
* ensuring assets are retained for family members who may need rest home care;
* to manage assets of someone who may not be able to manage their own affairs;
* maintaining separation between business and personal assets; and
* maximising tax efficiency for the beneficiaries.
Inheritance trusts: An inheritance trust is generally created by
parents for their children. It not only benefits children when their parents
pass away, but also during their parents' lifetime. The benefits of an
inheritance trust are:
* allowing parents to ensure that their children's inheritance is protected
from future relationships, business partners or creditors; and
* protecting separate property from relationship funds if you are expecting to
inherit significant assets.
Inside this edition
Types of trusts and their benefits
Purchasing a property at auction - what
you need to know
Bringing the Adoption Act into modern
change to gun laws
rights do beneficiaries of a discretionary trust have?
of the executor
new Trust Act 2019
Business trusts: A business trust generally holds assets that are
separate from family and personal assets to protect you from a business
failure or major loss. It also protects your personal or family assets from
potential creditors. A common scenario is to have your business trust own
shares in your private company, which allows dividends to flow through the
business trust and to the beneficiaries. A business trust provides for
succession planning if a business partner dies or becomes incapacitated, and
also may result in tax advantages.
Charitable trusts: A charitable
trust as the name implies, is a formal arrangement set up for a charitable
purpose. This can relate to relieving poverty, advancing education, religion
or any other matter that benefits the community. The benefit of a charitable
trust is that as a donor, you can provide long-lasting contributions that
continue after your lifetime. Furthermore, registering a charitable trust with
the Charities Commission can provide tax advantages.
Whether a trust is suitable for your needs is best determined by a lawyer.
This article is simply an overview of the more general points about the common
trust structures. Each case is different as it depends on the purpose of the
trust. It is advisable to discuss your overall asset planning goals, financial
and relationship situations with your lawyer who can also liaise with your
accountant (if applicable) to determine the best course of action for you.
When purchasing a
property, there are generally two ways in which you can achieve this.
The first, the traditional offer method, is by offer and acceptance of a
signed Agreement for Sale and
Purchase between the
vendor (seller) and purchaser (buyer) of a property. The terms of the
Agreement for Sale and Purchase can be negotiated between the parties, whether
through a real estate agent or a private sale. These types of agreements, can
contain terms, known as special conditions to enable the purchaser sufficient
time to ensure they have completed their due diligence on the property
including (and not limited to) confirmation of finance being approved,
obtaining Land Information Memorandum (LIM) reports to check for building
consents, code of compliance certificates, location of services such as
stormwater and wastewater running through the property, and any intended works
by the council or government agencies, such as road construction. Additional
reports may be required such as building and methamphetamine contamination
reports and anything else the purchaser may need to satisfy themselves that
the property is suitable for their needs. This traditional method gives the
purchaser the ability to terminate the agreement should they genuinely not be
in a position to confirm their special conditions of sale.
second method is purchasing by way of auction. For any purchaser using this
method, which can be riskier than the traditional method, it is highly
recommended that they complete their due diligence of the property being
purchased first. The consequences of not completing your due diligence could
result in the property being purchased with hidden issues, such as
weather-tightness or not having had code of compliance certificates issued for
works completed from 1993 onwards, which may in-validate your insurance or
prevent your bank from lending you mortgage funds.
The check-list mentioned above under the traditional offer option must also be
carried out when an auction is the method of sale. The only difference is
timing. Under the first traditional method, the purchaser has the luxury of
having a signed agreement to work with. However, with the auction method the
purchaser will have needed to complete their due diligence for the property,
including approved finance as he or she must be ready before the auction. This
is because when the hammer falls in your favour you are bound to purchase the
property from that time.
The important steps to be aware of when purchasing by auction include the
* Register your interest with the real estate company before the auction.
* Have your conveyancer or solicitor review the auction terms and conditions
to the Agreement for Sale and Purchase before the auction.
* Ensure the vendor warranties, which give the purchaser protection in some
circumstances, have not been deleted from the auction terms.
* Be prepared to have your deposit amount available, as at the fall of the
hammer, if you are the winning purchaser your deposit is immediately payable.
* The reserve price the vendor has disclosed to the agent will not be known to
the general public. Researching the value of the property before you attend
the auction will ensure you are not over paying for it, or entering into a
bidding war and going over your pre-approved finance limit.
* Once you have purchased at auction you are committed to completing it. There
is no going back without a great legal battle, and you may forfeit the deposit
you have paid.
* If the property fails to sell at auction, you may then be invited to enter
into negotiations with the vendor to discuss price, the settlement date and
any special conditions of sale.
It is recommended that you consult a legal professional before signing any
Agreement for Sale and Purchase, whether it is by the traditional method or by
way of auction, to ensure your rights as a purchaser are protected.
The New Zealand Adoption Act 1955 ("the
Act") has been widely viewed as being in need of an overhaul to bring it up to
date with the modern times. In 2016 the Human Rights Review Tribunal ruled
that sections of the Act were discriminatory and outdated. This article will
take a closer look at the specifics of the Act that are not in keeping with
today's New Zealand.
Surrogacy - The Act sees the
natural mother (the woman who births the child) as the legal guardian of the
child. The natural mother is named on the birth certificate and her partner,
if she has one, as the father. This occurs even in the case of surrogacy where
the natural mother and/or her partner have no biological
connection to the child. This means that the biological parents have to go
through the adoption process to become the legal guardian of their biological
The Act does not allow for surrogacy agreements to be enforced. This leaves
the biological parents with little or no security that when their baby is born
it will legally become their child if the natural mother decides to keep it.
On the other hand, except for direct costs such as the hospital invoices,
surrogates cannot be compensated for their time or loss of wages.
Not the nuclear family - Currently under the Act single men cannot
adopt a female child unless the court is satisfied that the man is the child's
father, or that there are special circumstances that justify the adoption.
There is nothing in the Act that states a
single woman is not allowed to adopt a male child.
Until the Marriage Amendment Bill was passed in 2013, same sex couples could
not legally adopt children. In New Zealand the number of children available
for adoption has declined substantially over the years, meaning many New
Zealanders now have to adopt from overseas. The problem for same sex couples
in this regard is that New Zealand has overseas adoption agreements with five
countries (India, Lithuania, Philippines, Russia, Thailand) but none of these
countries will accept applications from same sex couples, whether they are
married or de facto.
Magic numbers - The mandatory age requirements for adopters are found
in section 4 of the Act. This section explains that you must have reached the
age of 25 years and be at least 20 years older than the child that you wish to
adopt; or you have reached the age of 20 years old and the child that you wish
to adopt is a relative.
You are considered a child in the Act until you have reached the age of 20.
This means that adoptees are not able to obtain their birth certifications or
know any medical background regarding their biological parents until they
reach the age of 20.
The Act is a reflection of New Zealand society in 1955, and perceptions have
changed over the 64 years since the Act was brought in, with different views
now on adoption. With that said, the Act requires an overhaul to bring it in
line with the modern views of today's world.
Following the amendments to the Arms Act
1983 ("the Act") that came into force on 11 April 2019, a second tranche of
proposed changes, the Arms Legislation Bill ("the Bill"), is currently under
review by the Select Committee. This next step in the reform of the Act looks
to establish a firearms registry and amend licensing requirements with the
intention of reinforcing positive behaviour that is required of firearms
Not much is currently known about the firearms in New Zealand in respect of
how many there are (legally), who has them, who is buying and selling, and how
secure the firearms are. The Bill proposes to create a firearms registry that
would store this information about firearms and link them to licence holders.
Information about licence holders, their weapons, and ammunition would be
stored on the registry. This would allow every legally held firearm in New
Zealand to be monitored.
The licensing regime would be strengthened with the Bill aiming to tighten the
current rules for both individuals and dealers. The licence period would be
shortened to five years from the current ten-year period, with potential
increases to the fees as well. Licence requirements would also be extended to
cover parts, magazines, and ammunition.
A new system for warning flags is proposed in the Bill to give the police more
tools to vet people and allow them to intervene if concerns are raised about a
licence holder. This system would capture behaviour such as encouraging or
promoting violence, hatred or extremism, serious mental health or substance
abuse issues, having close associations with gangs or organised crime, and
being convicted of certain offences. The aim here is to filter out high risk
people that are deemed an unfit and improper person to hold a firearms
Shooting clubs and ranges would
also have a licensing regime introduced by the Bill. There are currently no
licensing requirements for clubs and
ranges in New Zealand. Clubs will also be required to have rules in place in
regards to the safe operation of firearms. Ranges will be required to meet
The recent amendment to the Act saw increases in penalties relating to
firearms offences. This Bill will see further increases in penalties and also
introduce new offences. An example of the degree of change that is proposed
under the Bill is the penalty for being found guilty of selling or supplying
firearms to an unlicensed person. Currently, a person found guilty of this is
liable for up to three months imprisonment or a $1,000 fine. This would be
increased to up to two years imprisonment or a $20,000 fine.
The Bill looks to re-state the purpose of the Act to put an emphasis on owning
a gun being a privilege not a right, and people with that privilege have a
responsibility to act in the best interests of public and personal safety.
When trustees act for a discretionary
trust, they have a primary duty to act for, and in the best interest of the
beneficiaries. Consequently, any benefit received under the trust is provided
at the discretion of those trustees.
Trustees of a discretionary trust have a wide-ranging scope of power in terms
of the decisions they make for the trust, with a limited liability for such
decisions. However, beneficiaries do also have rights under law to monitor the
Generally, a discretionary beneficiary has the right to:
* request from the trust or its representatives, documentation for the trust
(i.e. trust deeds, appointment/removal of trustee documents, details of trust
distributions, trust accounts, trustee contact details and details of trust
assets and liabilities);
* receive fair treatment from trustees;
* be considered in any decision made by the trustees;
* seek the court to remove a trustee; and
* apply to the court for intervention or assistance.
The ability for a discretionary beneficiary to request and obtain trust
information is an important right and can be where disputes arise. It is
important for beneficiaries (especially if you have only just found out you
are a beneficiary) to understand what exactly the trust assets and liabilities
are, who the trustees are if you want to contact them, and potential history
of the trust and trustees. Whilst the request for this information can ruffle
the feathers of some trustees, and trustees have been known to deny requests
(see the recent case of Erceg v Erceg), the underlining fact remains that the
trustee's role is to act for the beneficiaries benefit above all.
Discretionary beneficiaries can request, but may not be entitled to receive
the reasoning behind trustee decisions. This is to protect the role of the
trustee and the trust that is placed in them when the trust was established.
However, the court can intervene if an explanation is considered justified.
If a trustee is thought to be acting contrary to the benefit of the
discretionary beneficiaries or is refusing to provide information to the
beneficiaries, then the beneficiaries can apply to the court to have such
information released and potentially have the trustee removed or replaced.
Given that there is no requirement for anyone to inform you that you are a
discretionary beneficiary of a trust, sometimes trusts can be wound up before
you are made aware. Where this occurs, a beneficiary can request provision of
information relating to the winding up and final distributions of the trust to
see how the assets and liabilities were distributed.
Under section 68 of the Trustee Act 1956, a trust beneficiary can apply to the
court to review a decision or act performed by the trustees if they feel that
they have reasonable grounds for being aggrieved by the act or omission.
Whether a discretionary beneficiary can apply under this act is not yet set in
stone, however, decisions by the court point to the idea that if the number of
discretionary beneficiaries is small, it may be permissible.
If you are a discretionary beneficiary and unsure of your rights, it is
advisable to contact a legal professional to talk you through this.
The role of the executor
when you are asked to be the executor of a will, you accept the role without
truly knowing its parameters. While not wishing to deter anyone from accepting
the responsibility to carry out this very important role, you must understand
what it entails. When a member of the family or a close friend asks you to be
the executor of his or her will, you should seek some legal advice before you
Often the words 'executor and trustee'
of the will are included together. The roles are often combined these days,
with the trustee aspect relating to any testamentary trust set up under the
will. For example, if a child under 20 receives a distribution under a will,
he or she must wait until the specified age before receipt of such
distribution. In the meantime, the executor oversees both the investment of
those funds and how access may be affected based on the terms of the will.
The executor works closely with the lawyer for the estate of the deceased to
co-ordinate all aspects of the wishes as set out in the will. These jobs
include: organising and accepting responsibility for the funeral; the
obtaining of Probate (which is a court document confirming to the world at
large that the executor stands in the shoes of the deceased); the distribution
of chattels and cars; the itemising of all assets and liabilities of the
estate; the investigation of any issue that arises as a result of that
itemising; the transfer and distribution of all property and cash and other
investments once known; together with the closing off of all matters ending
with a final tax return for the estate.
While your lawyer helps with every step of the way, it is your role as
executor that ensures a life well lived is recorded and signed off
The new Trust Act 2019
Trusts are widely used in New Zealand, with the main focus
in recent years being on family trusts. These have been utilized in relation
to relationship property, succession planning, risk control,
and as a vehicle for enabling blended family outcomes; to name but a few.
The previous legislation around trusts has not been overhauled or reviewed for
a long time. Aligned to that are a myriad of court cases setting up common law
positions, both old and new. Often the current issues fit like square pegs in
round holes. Many common-sense outcomes in today's world have been frustrated
by the legislation lagging behind. Trust law is no exception.
So, the new Trust Act 2019 is very welcome. While passing into law on 30 July
2019, it does not come into effect until 30 January 2021. The interim time
frame allows a true knowledge of what is proposed to be digested; with
variations to be made both to documentation and best practice systems. These
are being prepared and introduced so immediate compliance with the new
parameters are completed and expected.
A heads up then about compliance requirements. You will be reminded about the
duties required of those running the trusts, namely the trustees and settlors;
that the term of a trust may be longer that the current 80 years; that those
who benefit from them may be able to obtain more information in certain
circumstances; that written documents must be held and easily accessible; and
that reviews of trusts decisions will be more prevalent.
S J Scannell & Co
Would like to wish you
and your family a Merry Christmas and prosperous New Year
We advise our offices
will be closing on Friday,
20th December 2019 and
13th January 2020 at 8.30 am
If you have any questions about the newsletter items,
please contact me, I am here to help.
Scannell & Co - 122
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information in this newsletter is to the best of the authors' knowledge true
and accurate. No
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