Joan and Tom had three trusts. One owned their family home, one owned their holiday home in the Bay of Islands and one had owned their business.
Now that the business had been sold, that trust held a share portfolio into which the proceeds of the sale of the business had been invested. Joan and Tom’s accountant was their professional trustee. However, he was getting close to retirement and had indicated that he no longer wished to be a trustee.
Joan and Tom thought it would be good to take the opportunity to completely review their trust structure. They talked to a friend who recommended that they seek advice from a trust specialist. He explained that trust law had become very complex and was firmly out of the domain of general practice lawyers. So, Joan and Tom made a time with the specialist trust lawyer he recommended and took the large folders with all of their trust documents inside, along.
The lawyer said she would be very happy to review the trust documents but questioned in the first instance why they had so many trusts. Joan and Tom didn’t really know, other than they thought that was what their accountant had recommended at the time. The lawyer advised that when they had their business it was probably a good idea to have had their business in a separate trust. However, now that it had been sold, there was no need to continue to hold the proceeds in a separate trust.
The lawyer also said there was no good reason why the bach was in a separate trust and said it could easily be in the same trust as their family home. She recommended that she review the trust deeds for all three trusts to see which one was most up-to-date in its terms. If there was one that was on modern and flexible terms, she said they could resettle or transfer the assets from the other trusts into that one. Much had changed since Joan and Tom had set their trusts up and it was important that they were reviewed in light of the new Trusts Act 2019.
If none of the trust deeds were suitable, then Joan and Tom could establish a new, modern, flexible trust and transfer all of the assets of the other trusts on to the new trust. Joan was a bit alarmed by this. She had heard that if you moved properties that weren’t your family home out of trusts, then the bright-line test would be re-set. Their new lawyer confirmed that yes, that had been true until very recently when new legislation introduced roll-over relief.
What this meant was that residential properties could now be transferred in certain circumstances from trust to trust with no tax consequences. This was only a recent development in the law, but one that Joan and Tom could take advantage of.
The restructuring of Joan and Tom’s affairs also included reviewing their wills and their memorandum of wishes for the trust. It had been some time since this had been looked at. The lawyer said it was important to review these documents regularly, either when there was a change in circumstances, or ideally no less than every three years. She also reviewed their enduring powers of attorney to make sure these were still appropriate, and Joan and Tom identified an important change they wanted to make.
Review of your asset structuring is something that needs to be done on a regular basis. It is not only your circumstances that might change, but there can be important changes in the law that may enable you to more easily simplify your affairs, or it may be something that could render your existing documents out of date and not fit for purpose.
It is also important to see a trust specialist. Asset structuring has become complex. Modern lives are more complicated and the documents that govern our affairs are also less straightforward than they used to be. It is always better to document well upfront, rather than have to deal with a messy situation in the future due to lack of planning.
DAVENPORTS LAW, 331 Rosedale Road, Level 1, Building 2, Albany, T: 09 883 3284, www.davenportslaw.co.nz
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Published 3 July 2023