Andy and Susie had been together for six years and had one small child.
Andy was a school teacher and Susie was an accountant. They owned their home, which due to the rising property market on the North Shore, they now had quite a bit of equity in. After a tumultuous 2020, they were looking forward to a more settled 2021 (fingers crossed!) and had just spent two weeks over the summer in a gorgeous little bay on the Coromandel. They had enjoyed it so much that they were seriously looking at buying a section on which they would eventually build.
Susie was also making her way up the ranks in her accounting firm and had been offered an opportunity to purchase shares in the business and become a director. The other directors in the firm all had their shares in family trusts and recommended that Susie talk to her lawyer regarding whether she should also set up a trust to purchase her shares.
Susie and Andy spoke to a friend who explained that trusts had become quite a specialised area, especially since the new Act came in at the end of January 2021 and they really needed to talk to someone who was an expert in the area. Their current lawyer, who they had used to buy the house, was lovely, but did a bit of everything so they decided to go to the trust specialist lawyer recommended by their friend.
Their first question to the lawyer was - did they actually need a trust. Her answer was definitely yes. Becoming a director of any business brought with it an element of risk and it was all about layering up the protection. A trust was an important part of that asset protection and the lawyer recommended that not just the shares went into the trust, but also their family home. This would also wrap protection around the family home.
As Susie was an accountant, she already knew about the potential tax efficiencies that can come with a properly structured trust, particularly with the increase in the top personal tax rate which the government was introducing. Their new lawyer said that she would usually recommend taking tax advice, but Susie was able to handle that part of it. She explained that it was always important that the lawyer and accountant worked together to get the best outcome for the client.
If Susie and Andy did go ahead with purchasing the section, then it would be best to also put that into the trust. A trust is a perfect vehicle to hold assets that you may want to keep for future generations, and Susie and Andy were sure that the holiday home they would eventually build on the section would become a very special place for their family that they would want to pass down to future generations.
The lawyer explained that now was the perfect time to be setting up a trust – it was early on in their careers and lives and they would be able to show a history of protection in the event that they ever needed to rely on the protection that the trust would afford them. She said it was a bit like taking out medical insurance when you were younger before any “pre-existing conditions” could negate the benefit of protection. She also said with the recent changes to the Trusts Act, it was a perfect opportunity to set up a structure that was well suited to the requirements of the new Act and would hold itself in good stead for the future. She said that all people who already had trusts should be reviewing their existing trusts to make sure that they were correct in terms of the new Act. Susie and Andy both made mental notes to let their respective parents, who both had trusts, know this.
The other important elements the lawyer talked about was their wills and making sure that they tied in with the trust. She also said that they would need to think about their wishes for the trust after they died – she said it was called a memorandum of guidance or letter of wishes and it was a bit like a will for a trust. She said that she could provide examples to give them some ideas as to the kinds of things people liked to include.
Susie and Andy left the meeting feeling immensely relieved and confident that they were not only doing the right thing, but that they were dealing with a lawyer who was really knowledgeable and that they were getting exactly the kind of structure that they needed for their family and their future.
Davenports Law, 331 Rosedale Road, Level 1, Building 2, Albany, T: 09 883 4400, www.davenportslaw.co.nz
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