We have recently helped several couples in long term de facto relationships or marriages. All of the situations involved one partner who had most of the assets at the start of the relationship and those assets were held in a trust to benefit that person. Some of the couples also had a section 21 relationship property contracting out agreement. At some point – often around the 10 year mark – the couples decided that they wanted to make everything equal and no longer have an imbalance between them in terms of the trust or separate property.

Some of the couples had consulted lawyers to try to have their simple wishes honoured. The lawyers made the process difficult, often failed to understand what it was that the couple wanted (equality in the trust and in terms of assets), and often charged thousands of dollars even when nothing was accomplished. In most cases, we have been able to cost effectively give effect to the couples’ wishes. In many cases such couples can have their needs met through simple changes to the trust deed and related paperwork – with costs in the hundreds of dollars. In all cases we listen to what you really want, provide a fixed price quote for the work, and then carry out the work promptly.

We are often asked about the order of events when setting up a trust.

The first step is to create the trust (through the trust deed) and all related paperwork. To set up a trust, simply contact us. We make the process easy and straight forward. Once the trust has been set up, any assets need to be transferred into the trust. This cannot happen until after the trust has been set up.

If you have a mortgage on your home you may need to talk to your bank about transferring the title, and possibly the mortgage, into the trust. The bank will issue documents that will need to be signed – after the trust has been set up. It is possible to provide some protection for your home without transferring it to the trust and without involving the bank in paperwork; however, it is usually best to formally transfer the title to the trust. Most other types of property can easily be transferred into the trust.

Once the assets are in the trust, we remain available to help you with any questions that arise or with changes to the trust’s requirements or asset base. For example, if the home is to be sold and another purchased, or if you marry or divorce or other significant changes happen in your personal life, we are here to help you with any queries about how this affects the trust and we can help the trust with minutes, resolutions and related paperwork.

Please talk to us if you have any questions about setting up a trust or its ongoing administration.

Raoul and Maria’s family had lived in their country for generations. The political environment was becoming more unstable and repression was increasing. Raoul and Maria worried about the government’s threats to nationalise assets, which would rob them of all that they had worked so hard to build up.

Raoul and Maria decided that they would need to migrate to another country. In the meantime, they set up a New Zealand foreign trust. They transferred their investments to the trust. 

The trustee of this trust was a New Zealand resident company which held the investments for the benefit of Raoul and Maria. Those investments were now out of the reach of Raoul and Maria’s home country. They were not taxed under New Zealand law as the investments were held in bank accounts outside New Zealand (but owned by the New Zealand trust). Not only was Raoul and Maria’s nest egg safe, it had no liability to pay tax anywhere, allowing wealth to accumulate much faster than would otherwise be the case. 

Jane was professional woman in her late 20s. She had managed to save enough money to buy her first home. She was not in a relationship. Jane had to decide whether she would own the home in her own name or put it into a trust right from the start.

For a reasonable cost Jane set up a trust and her home was bought by the trust. Jane loaned the deposit to the trust and then forgave the debt. The net result was that all equity connected to the home was owned by the trust and not Jane.

When Jane later entered a de facto relationship, and then this ended after 3 years, the trust structure meant that the home was protected from claim by the ex partner. Jane had not needed to suffer the expense and stress of entering into a section 21 relationship property contracting out agreement.

Although sometimes claims can be made against trust assets by ex partners, if the trust is set up right, and at the right time, this risk is likely to be small. For added security a section 21 agreement could be entered into, however, our experience is that trusts are often the best answer.

We have some case studies for you to consider. They are based on actual cases, however, all identifying details have been changed:

Case Study 1

John and Mary were a business couple in their 60s who had worked hard all their lives to afford a nice family home and investments. Their only child, Ethan, was a concern to them. Aged 35, he had been in and out of rehab for drug and mental health issues. He had had a number of de facto relationships. Ethan was unable to hold a job for long and led a transient lifestyle. The one bright note was that Ethan had a son, Jacob, aged 3, from a previous relationship. Jacob’s mother had had issues and, for a time, Jacob had been taken out of her care, however, she had managed to turn her life around and was now doing a good job as a mother.

As good parents, John and Mary wanted to provide for their son but they were concerned that any money given to him would be wasted.

If John and Mary left money to their son under their wills, it is likely that there would be nothing to stop him spending the money as quickly as he wanted on drugs and unsuitable girlfriends. It wouldn’t take much for those girlfriends to have a claim to the inherited money.

If John and Mary left their money by will to an inheritance trust, or something similar, as a way to protect the money from Ethan, Ethan would be able to take a Family Protection Act claim to seek to overturn the will and have the money given to him outright.

John and Mary decided to set up a trust during their lifetimes. They transferred the home and their investments into the trust. Through careful wording of the trust deed they were able to ensure that Ethan’s reasonable needs would be provided for, but that he would have no ability to waste money or to use it to buy drugs. His girlfriends would have no claim on the money either. Because nothing was left via John and Mary’s wills there was nothing for a Family Protection Act claim to be made against. John and Mary were able to securely provide for Jacob - and more fully for Ethan if his situation improved.

The Public Trust offers a product called an “Inheritance Trust”. You set up a trust during your lifetime but property doesn’t get transferred to your trust until after your death.  The Public Trust says that, “An inheritance trust will help your beneficiary enjoy what you leave them, no matter what the future holds.” We consider that this statement may be misleading. 

Property that you leave in your will (whether to a trust or anyone else) can be claimed by a surviving spouse or de factor partner. Anyone who feels that they have not been left what they should have (children and others) can take a Family Protection Act claim against your estate. The end result after these common claims is that very little may be left over for transfer to the inheritance trust. It is far safer to transfer property to a trust during your lifetime. If done correctly there is little likelihood of a claim after your death. If you are seeking to ensure that your beneficiary will really get to enjoy what you leave them, the answer is not an inheritance trust.

Andersen Accountants Limited provides expertise in trust creation and management. Please contact us if you have any questions.

There was another interesting item in Mary Holmes’s Weekend Herald column. 

This query came from parents who wanted to draw up a section 21 relationship property/contracting out agreement for their child in order to protect the inheritance that the child would eventually receive. Given that a section 21 agreement can only be entered into by the actual parties (i.e. the child and his or her partner), and then only after expensive legal advice and after possibly causing considerable upset and acrimony in the relationship, the answer is no. The best option for parents in this situation is to set up a trust and place their property in the trust during their life times. The cost is likely to be far less than the cost for a section 21 agreement.

The trust deed should be drafted carefully so that a future partner of the child would be unlikely to have any claim. In addition, because the trust is something entered into by the parents it is confidential to them so it can be entered into without anyone else’s knowledge or permission. It is an effective way of protecting family wealth so that it stays in the family. A similar result can be obtained through a will but wills can be challenged. It is far better to set up a trust while you are still alive.