Time to test your trust
New Zealanders love trusts. In fact, we have one of the highest numbers of trusts per capita in the world. But it’s a love affair that is soon to be tested with the arrival of a new Trusts Bill.
The new Bill will more clearly set out the rules of the relationship. When it is passed, it will demand more openness and accountability and will ask for more in terms of time and financial commitment.
Historically, trusts in New Zealand have been able to operate with a degree of mystery. They’ve been an alluring prospect for protecting assets, not least against relationship and business claims, and their attraction was further enhanced when they were taxed below the upper rate.
These factors, when married to the relative ease of establishing trusts and the affordability of maintaining them, provided just some of the ingredients for our current love affair.
Public Trust Senior Solicitor Theresa Donnelly
Under the new legislation, our relationship with trusts will require greater transparency.
Trust beneficiaries will know a lot more about the trust. For starters, they’ll know that the trust actually exists and that they are indeed a beneficiary. In fact, beneficiaries will need to be told things about the trust without even needing to ask, such as the names and contact details of the trustees.
Moreover, information such as the amounts that have been distributed from the trust and to whom can be requested, and it will be harder than ever for trustees to withhold this information.
Greater transparency will also mean that trustees face more responsibilities and administrative demands, and there will be more accountability from neglecting their duty.
At first glance, complying with the new trust legislation may seem easy enough, but greater trust transparency will in some cases shine a light on things that some trust settlors might prefer to keep private.
For instance, parents who are trustees may find themselves in a difficult situation regarding a request from a child for trust information or have trouble explaining to a son or daughter why their request for support from a trust was rejected.
The new legislation will also mean that managing trusts will require more time and expense. In some cases, a trust may no longer be cost-effective.
Importantly, some trusts may not offer the same protection or may fail to meet the objectives for setting them up in the first place. In short, the trust may no longer be relevant.
In spite of these factors, it won’t mean the end of our relationship with trusts. They will still hold an important place in estate planning and provide an excellent option for protecting or managing assets in the right circumstances.
The take home message is that everyone with a trust should get it reviewed in light of the new legislation, and they should do it now – before it takes effect.
The Trusts Bill is expected to pass very soon. There will then follow a transition period to give people time to reassess their relationship with their trust.
Use this time to ask honest questions about what you need from your trust. Sticking with it may still be the best move, despite the fact that you may find yourself needing to do things differently. It may, however, be time to part ways on good terms.
Contact: Ian Letham, Content & Communications Consultant
Phone: 022 070 0979