We set up your trust when we get to know your personal situation.
- A. General information on trusts : *Reasons for trusts. *Type of assets for putting in a trust. *Parties in every trust.
- C. Trust documents that may apply to every trust :
– Deed of Trust – Memorandum of Wishes
– Transfer of assets by sale/debt acknowledgement
– Deed of forgiveness of debt and declaration of solvency –
– Last will
– Enduring Powers of attorney – Living will/organ donation and Final Declaration – Resolutions of trustees – Loans with banks and Mortgage documents
– Registration of all changes at the Land Registry
- D. Estimated costs for setting up a trust with documents
A. General information on Family Trusts
We know the pain you may go through if you lose your assets. We have seen this with clients who did not have their assets in a trust. These losses can be prevented by setting up a family trust to protect your assets for yourself, and for the members of your family.
Jacques Vannoort (LLM), our trust lawyer, has set up hundreds of trusts over many years in New Zealand. He has advised some of his trust clients for more than 25 years. He has experienced their satisfaction at having trust protection.
Reasons for trusts:
- Risks – You are a professional or business person who takes risks, and you need to protect yourself and your family and your business against liability, if losses, damages or negative consequences happen or;
- New relationships – You are entering into a new relationship or you are ending one, and you don’t want to lose half of your own family assets, if things go wrong between you and your partner or;
- Children – You have children, either communal or from a previous relationship or you may be planning a family, and you want to make sure that your children are protected when they grow up or;
- Entitlements and subsidies – You wish to have all the possible entitlements and subsidies available to you as of right, without scrutiny of your savings and assets, if you ever have a need of support or if your partner is much older than you are and may face State care before you or;
- Weakness or incapacity – You have family members who are weak in some respect or incapacitated, and who need the support of a trust when you are no longer there to protect them or;
- Financial safeguards and tax advantages – You wish to place your property (residence, rental or bach) in a separate legal entity to have all the safeguards and tax advantages attached to that or;
- Capital gains or other taxes – You wish to prevent your family members being subjected to capital gains or other asset taxes to come in future or when you pass away.
- Directions to be followed after you pass away. Unlike Last Wills it is almost impossible to upset the directions given by the settlor of a trust in the deed of trust and the memorandum of wishes.
- Allocating assets or specific funds or investments for purposes of a family or charitable nature that you have chosen to benefit.
What type of assets would you put into a trust ?
- Assets which you are building up or that already have a high value.
- Assets that have an undefined value such as valuable gardens or works of art or classic automobiles.
- Assets which define your way of life or leisure
- Assets put aside to ensure that claims of a relationship nature or through professional or business risks or even damage claims that are made against you will not succeed.
- Money or investments or shares for specific purposes – for example your children’s tertiary education when they come of age
- To protect assets for family members such as the family home – the transfer of ownership of certain assets can enable the settlor to pursue more high risk ventures knowing those assets won’t be put at risk if the settlor faces any personal liability and is pursued by creditors
- Any assets to be managed for a family member who is unable to manage their own financial affairs.
- All personal assets to safeguard them from potential relationship property claims
- All financial or business assets to change tax liability and to ensure that the proper measure of taxation is paid.
The basics of every family trust
A family trust is a legal structure which has been set up by a person called the settlor. It is a holding entity for assets of various kinds and it is identified by its chosen name, its trustees and its allocated IRD number
Trustees are chosen to run the trust assets and their income and expenses for the people named as the beneficiaries of the trust.
The main parties to a trust are:
The settlor: the person (or people) who makes the initial transfer of property to the trustees of the trust.
The trustees: generally two or more people whom the settlor is confident in to manage the trust prudently. A settlor of a trust can also be a trustee of his or her own trust. In particular circumstances it might also be fitting to have a independent trustee, such as an accountant or lawyer.
The beneficiaries: the people whose benefit the trust is established for. Beneficiaries can be named individuals, or a class, such as “children”. There are generally two types of beneficiary, discretionary or final beneficiaries. Discretionary beneficiaries have a right to be considered for payment from the trust property by the trustees, whereas final beneficiaries have a legal right to trust property the date the trust finishes
B. Procedure for creation and finalizing a Family Trust
How is a trust created ?
A trust is created when the settlor transfers the property to the trustees of the trust. This establishes a relationship whereby the trustees are legally obliged to manage the property in accordance with the purposes set out in a document known as a trust deed. Generally, one of the purposes is to hold the trust’s assets for the benefit of the beneficiaries of the trust. It is the duty of the trustees to act in the best interests of the beneficiaries.
All this is set out in a deed of trust.
What is the procedure once the deed of trust has been formed ?
- Deed of trust is signed by the settlor and trustees with starting date.
- Application for IRD number for trust and for trustee company, if applicable
- Memorandum of wishes and last will of settlor are signed
- Sale and gifting agreements with declaration of solvency are signed, which means that the assets are legally owned by the trust from that date onward
- In meantime requirements from bank are obtained to allow the transfer from settlor to trustees to take place. Banks may require new loan documents or new mortgage documents and guarantees by trustees. If no bank loans are present this step can be skipped.
- Once all bank documents are signed to satisfaction of bank all the changes and transfer of ownership and/or mortgage can be presented to Land registry for registration and a new certificate of title for the property is obtained
- Resolutions of trustees showing all of the above and their powers to distribute, run bank account, provide for residence in trust property etc are set up and signed.
- All trust documents are presented to clients in a special trust suitcase for safekeeping of all trust documents.
C. Trust documents which may apply to every trust
Deed of Trust
To allow us to set up a deed of trust we need the know the following:
- What are your aims for the protection and use of the assets ?
- What are the personal details for you and your family as settlors, trustees and beneficiaries ?
- What special needs or peculiarities exist within your family ?
- What are the details of your assets and IRD numbers and other registration and financial details ?
- What if any loans are owing and possible mortgages registered against your properties ?
- What debts, agreements, arrangements, claims or seperation or matrimonial payments or agreements have been made ?
- What is your present matrimonial, partnership or other status and what promises have you made to others ?
- What gifts above $6,000 per person per year have you made in the last 5 years ?
The deed of trust names most of the points mentioned above as well as:
- Starting date of trust and how long it runs;
- The names of the settlors, trustees and often the classes of beneficiaries;
- The powers of the trustees;
- What happens on distribution of capital and income and who can benefit and how payment takes place;
- A number of activities which can take place such as change of trustees, resettlement and amendment and possible termination of the trust as well as conflict and liability issues are also dealt with;
- The power to name the beneficiaries is reserved for certain named people such as the trustees;
- The power to remove and appoint the trustees is also given to a certain named person and that is usually the settlor of the trust;
- A number of other running matters are also set out in the deed of trust.
The Memorandum of Wishes
This document sets out the wishes of the settlor of the trust.
It is read alongside the Trust Deed It is meant for the trustees who may come after the settlor and run it then. It is an indication on how the trust is to be managed and how moneys are to be distributed (subject to the powers in the trust deed) in looking after the beneficiaries.
Beneficiaries can be discretionary ( as per discretion of trustees) and final beneficiaries (as the beneficiaries whose entitlements to their share of the funds cannot be disturbed).
The memorandum shows the intentions of the original settlors of the trust. Settlors can go into as much details as they wish to.
Our solicitor will talk you through a number of options for welfare, health and education spending, holidays, support by means of loans and death or separation of the settlors of the trust.
Settlors may revise their memoranda to reflect any changing situations as time goes by.
The memorandum can give guidance on:
- The purpose and reasoning behind establishing the Trust;
- Who is intended to benefit from the Trust;
- The Trust distribution date;
- Distribution of Trust income and capital; and
- Any discretionary powers of trustees.
Whether you have an established Trust, or you are looking to create one it is recommended to have a Memorandum of Wishes alongside your Trust
Transfer of assets by sale agreement / acknowledgement of debt
The transfer of assets can only take place when It has been made clear which assets are to be transferred and when that should take place as follows:
Money assets are simply sold for their present day value but term deposits may sometimes be deferred until later to prevent penalties;
Investment portfolios of shares, equities and other assets which are registered may need some time to allow for the name change to take place.
Property such as residential house and rentals or business premises will usually have loans attached to the with banks. Permission from the banks is needed and they will usually expect that the mortgage is discharged and that a new mortgage is taken out in the name of the trust, and signed by the trustees. Once we know the requirements of a bank in the situation their documents are sent to our solicitor and signed in front of him. It is then ready to be sent to the Land registry for registration of the transfer of ownership to the trust and the registration of mortgage and to get a new certificate of title.
The transfer of the assets is set out in agreements for sale and a deed of acknowledgement of debt which shows the indebtedness of the trustees to the settlor for the value of the asset. That is why it is necessary to get to know the value of each asset.
Deed of forgiveness of debt and declaration of solvency
The assets are sold into the trust and the result is a debt which arises out of that sale.
If no further action is taken then creditors can attack that debt owing to the settlor and force the trustees to make payment to them for the value of the indebtedness of the settlor to them.
It is therefore essential that the trustees ask the settlor to forgive that debt. That gift can take place for any amount and no tax is paid on that anymore.
A declaration is then also signed by the settor showing that he or she is solvent at time of making the gift.
It is vital however that the settlor is made aware of the consequences of the gift. Our State departments take a strong interest in ascertaining how much any applicant has gifted away when they should ever make a claim for a state subsidy.
Our solicitor will explain all the ins and outs of such gifting and will advise you on what is prudent in your circumstances.
This document allows the testator to give certain directions on his or death that must be followed. This deals with burial, the appointment of who is to act as executor, guardian and the disposal of the estate of a personal and general nature.
Other matters are also important when a trust has been formed:
- When most of the assets have been sold into the trust it is vital that trustees are able to act.
- The deceased will appoint the trustees on death.
- Directions are also given as to whom has the power to appoint beneficiaries, and also remove and appoint new trustees to the trust.
- And also give special instructions relating to some trust assets and how they are to be used or distributed.
Many people die without making a will l – this is called dying “intestate”. If you have not left a will to give directions for how to distribute your assets:
1. The Court will appoint an Administrator of your Estate. Your family would have to apply to the Court for administration, and this can take months for the High Court to process the application. It is complicated and expensive.
Your family will have to prove to the Court that they have made a genuine effort to try to find a valid Will; and
A search has been undertaken for any illegitimate children who may have a claim.
2. The Court appointed Administrator will be required to distribute your assets to your next of kin in accordance with the Administration Act 1982. It could mean that family members will benefit from your assets even if you do not want them to receive anything.
It is also vital to examine any old wills to see if they conflict with the formation of the trust.
Enduring powers of attorney for personal and property matters
It could happen that you are unable, through illness or injury, to make decisions yourself.
An Enduring Power of Attorney (EPA) enables you to appoint someone you trust to make decisions on your behalf, particularly when you are unable to do so yourself. it can protect your best interests.
1. The Enduring Power of Attorney for Personal Care and Welfare – It comes into effect if you become ‘mentally incapable’ and enables your attorney to make medical or other related decisions about your care and welfare.
2. The Enduring Power of Attorney for Property – It comes into effect before you become ‘mentally incapable’, and can cover a select number of things you own or everything you own.
If you become mentally incapable and have no EPA in place, then your family need to apply for a Family Court order. This is time consuming and costly.
In every trust formation the parties concerned should ask who is to act and what is to be done when one or both of the settlors become mentally incapacitated.
The powers for property matters and personal matters exist and allow a wide scope of support if such an incapacity occurs for the settlors.
Legal advice is essential in such document formation. Certification of the document by a solicitor is a legal requirement, before it can be used for banks and retirement villages and rest homes.
Living will with donation of organ declaration and the Final Declaration
Settlors may wish to make a declaration as to what should happen to them if they find themselves in a situation where there is no reasonable expectation that they will have a continued life without total dependance on life support machinery or medicines. They have the opportunity to make a declaration that they do not wish to continue to receive tsuch continued support and would prefer to die a natural and pain medication assisted death. That is set out in the Living Will.
A donation declaration is for organs and other body parts which may have may be of some use to others after the death of the donor. Those wishes are conveyed by this declaration.
It is handy to record important details that govern one’s life in a document which is given to the executor after the person has died. It aids the activities of the family and the executor a great deal when this is drawn up and made available. The Final declaration is therefore extremely useful.
Resolutions of trustees
A number of written decisions and transactions and appointments are to be recorded by orudent trustees. They are fairly standard and set out the particular circumstance in every case.
Loans and mortgage documents for banks
Whenever a property is transferred into a trust the certificate of title for such a property has to be adapted to show the change of owners into the trustees of the trust.
Because banks have given mortgage to support their loans the bank has to give approval in each case. Mostly they want us to discharge the old mortgage and register a new mortgage with old kinds of trustee certificates and guarantees. Also registration forms have to be signed and taxation certificates have to be prepared as well as investor declarations if accounts are opened.
It is a registration exercise of many documents that each have to be signed and witnessed, and which must all meet the strict requirements of the Banks and the Land Registry. Banks also charge for the new documents
We give our legal support in these matters.
Registration of all changes to the certificate of title at the Land Registry
Once all documents have been signed and approved by the bank then the changes which are recorded in the documents can now be transmitted and logged electronically by means of specialised systems to become part of the Land Registry arsenal of land records in new Zealand.
This Government body provides a proof of changes by means of an adapted certificate of title with mortgage document and land or subtitle plans.
D. Estimated costs for setting up a Family Trust including all transfers and other documents and transactions dealing with the transfer of assets into the trust.
Deed of trust – $700
Memorandum of wishes – $400
Transfer of assets by sale/debt acknowledgement – $320
Deed of forgiveness of debt and declaration of solvency – $320
Last will for 2 people -$380 Enduring Powers of attorney for personal and property matters – $380 Living will with Donation for organs and Final Declaration -$220 Resolutions of trustees for set up and running of trust- $ 160 Loans with banks and Mortgage documents – $ 680 Registration of all changes to the certificate of title at the Land Registry – $680
The estimated total cost for setting up a family trust and for transferring one mortgaged property into that trust for one person together with all bank documents and document costs and all land registration costs and further tax registrations of the trust thus amounts to $ 4,240 plus GST. This is an estimate only and the real costing in our written quote will depend on the facts and circumstances that you present to us. Not all documents are always required by clients. We will always give you a quote before commencing work and never exceed the costs named in our quote unless we have your explicit approval.
Any general information provided on this site should not be regarded as legal advice unless you have provided us with personal details and circumstances that allow us to advise you as qualified legal professionals, who hold valid legal practising certificates.