Category: Asset Planning

The recent decision by the Independent Charities Registration Board (“the Board”) that Greenpeace does not qualify for charitable status provides further guidance for charities regarding political purposes, ancillary purposes, and illegal purposes.

Greenpeace background

The stated purposes of Greenpeace include to:

• Promote interconnectivity between humans and the planet;
• Promote the protection of the environment (including promotion of elimination of all weapons of mass destruction);
• Identify, research and monitor issues affecting these purposes;
• Develop public awareness;
• Promote education on environmental issues;
• Co-operate with organisations with similar objects to Greenpeace; and
• Promote the adoption of legislation which further the above.  This was amended to be clearly ancillary to the other stated purposes.

These purposes are capable of being charitable, however the question for the Board was how the end goals were furthered by Greenpeace.

Charitable purpose to protect the environment

It was considered that Greenpeace largely promoted personal views on environmental issues.  It is not possible to say whether the views promoted are of benefit to the public in the way the law recognises is charitable.  As public benefit cannot be found, Greenpeace’s purpose cannot be held to be charitable.

Greenpeace’s purpose could still be considered charitable if the non-charitable purpose, of advocating for the protection of the environment, is merely ancillary to an identified charitable purpose.  The Board considered that the primary focus of Greenpeace’s activities has been promoting its point of view on environmental issues, thus cannot be considered ancillary to an identified charitable purpose.

Charitable purpose to advance education

The test in Re Collier [1998] 1 NZLR 81 (HC) is that for research to qualify as educational it must:

• Convey a public benefit in that it somehow assists the training of mind or advances research;
• Not amount to propaganda or cause under the guise of education; and
• Reach some minimum standard.

The Board considered that to advance education, information must be presented in a balanced, objective and neutral manner so that the reader can form a view for themselves.  There can be no intention to persuade the public to a particular point of view.  Although some of Greenpeace’s reports are structured as research, the reports lack an independent and objective starting point in their analysis.  It was considered that Greenpeace’s reports seek to promote their particular point of view on environmental issues rather than to educate.

Charitable purpose to promote peace

The Board considered that Greenpeace’s activities in this area amounted to promoting its own particular points of view, thus it was not possible to confer public benefit and the purposes could not be considered charitable.  Further, the stated purpose to promote peace is expressed as a primary purpose that can be carried out independently from all other purposes, and thus is not merely ancillary to an identified charitable purpose.

Illegal purpose

The Board identified eight instances from 2011-2017 where there were activities that may have involved illegality carried out by Greenpeace’s members in New Zealand, including unlawfully being on property, trespass, resisting police, obstructing a public way, bill sticking, and disturbing meetings.  The Board noted that annual training included training for specialist climb and boat teams, which suggests that Greenpeace authorises and directly coordinates illegal activities such as trespass on ships and buildings.  For this reason, it was found that Greenpeace’s illegal activities form part of a pattern of behaviour and are not isolated breaches.  Taking into account the above, the Board found that Greenpeace has an illegal non-charitable purpose that disqualifies it from registration.

Decision

The Board considered that Greenpeace had an independent purpose to advocate its own particular views on environmental issues and peace/weapons that could not be sufficiently determined to be for the public benefit in a way previously accepted as charitable by the Courts.  Greenpeace also had an illegal purpose that disqualified it from being a registered charity.

The Board decided that Greenpeace does not qualify for registration as a charitable entity because it is not established for exclusively charitable purposes.

Learnings

Advocacy will not be considered a charitable purpose where it is promoting a particular view and is not ancillary to a main charitable purpose, in other words if advocacy is a main purpose of an organisation.  Further, a purpose will not be considered charitable through the advancement of education where information is merely collated from other areas or does not provide a complete factual view.  Involvement in illegal activity, even where remote, is likely to cause the automatic failure of the application for charitable status.  These are all important factors to keep in mind when applying for registration as a charity or when considering the activities of a registered charity.

Kaylee is a Law Clerk in our Asset Planning Team.

Online wills or do it yourself will kits seem to be a popular new trend and could be due to a number of factors.  For example, people often put off making and signing their wills until they are going overseas and they feel a sense of urgency to ‘get their affairs in order’, and sometimes it is the simple fact that online wills or will kits are seen as more cost effective.

However, are online wills or DIY will kits, especially without a lawyer’s oversight, the most effective way to ‘get your affairs in order’?

In the recent case of Mills v Laboyrie [2018] NZHC 1368, the question before the High Court was whether or not a partially completed will from a will kit satisfied section 14 of the Wills Act 2007.

For a will to be declared valid under section 14, it has to satisfy the following requirements:

• the document has to appear to be a will;
• the document does not fall within section 11 of the Wills Act 2007 (for example, it is not signed and witnessed by two independent people);
• the document came into existence in or out of New Zealand; and
• the document expresses the deceased person’s testamentary intentions.

Background

The deceased was Stephen Mills who died of complications with multiple sclerosis on 14 April 2017.  At the time of his death, Stephen lived in the family home and required daily care.

Stephen was one of eight siblings.  Stephen’s brother Terence was involved with Stephen’s care and seemed to be the only sibling that understood Stephen’s fear of leaving the family home and being placed into a care facility.  Terence was involved in building work and was working on making Stephen’s home more accessible as Stephen’s disease progressed.  Some of Stephen’s other siblings had been exploring arrangements for him to be placed into a full-time care facility.

On 10 April 2017, a few days before his death, Stephen’s carer obtained a will kit at Stephen’s request.  The document was drafted by Stephen’s carer, but dictated by Stephen.  The provisions of the document were read back to Stephen and he verbally indicated to his carer that the document outlined his wishes.  The resulting partially completed document left everything to Terence.

A Justice of the Peace was organised by Terence to formalise the will on 12 April 2017 by witnessing Stephen sign the will.  However, prior to this occurring, Stephen was hospitalised and subsequently died without formalising the will.

An earlier draft will, prepared seven or so years prior to Stephen’s death, provided for equal distribution between all but one of the siblings.

High Court decision

The Court determined that section 14 of the Wills Act applied to the will kit document and could be declared a valid will if Jagose J was satisfied that it expressed Stephen’s testamentary intentions.

Jagose J cited Re Campbell (deceased) [2014] NZHC 1632, [2014] 3 NZLR 706 (HC) at [18] where it was observed that:

“… section 14 [is] a remedial provision, and that where there is evidence of the deceased person’s testamentary intentions, it is better that those intentions be given effect, in preference to the disposition of property which would take effect under any previous will, or on an intestacy.”

Jagose J found that as Terence appeared to be the only sibling that understood Stephen’s fears about moving into permanent care, it seemed consistent with Stephen’s desire that he wanted Terence to be the recipient of his estate.

Based on the factual circumstances and evidence, the Court held that the partially completed will kit document did express Stephen’s testamentary intentions and it was therefore declared a valid will.

Conclusion

Although the Court found that the will kit document was a valid will in accordance with the Wills Act 2007 in this case, having a will declared valid by the High Court is not the most cost effective way to deal with your asset planning matters, and can add further stress to grieving family members.

While online wills and will kits may be good initial first steps in getting your affairs in order, there are benefits to be gained by involving a lawyer in your asset planning matters.  A lawyer can advise you of the laws that may impact on the provisions of your will.  For example, there are relationship property and family protection laws that may trump some of the specific wishes in your will.  Asset planning matters you already have in place, such as a trust, also need to be taken into account.  Lawyers can advise you on the possible effects and implications of your wishes.  Lawyers will also use their best endeavours to see that a will is completed in accordance with the terms of the Wills Act so that you can be rest assured your affairs are in order and are less likely to be subject to Court scrutiny.

Natalie is a Solicitor in our Commercial and Asset Planning Teams and can be contacted on 07 958 7435.

Both Powers of Attorney and Enduring Powers of Attorney allow a person, referred to as a “donor”, to give certain powers to another person, an “attorney”, for specific circumstances.  Those specific circumstances are what determine which document is required.

One of the main differences between a Power of Attorney and an Enduring Power of Attorney is that the Power of Attorney is revoked when the donor loses their mental capacity but the Enduring Power of Attorney is not.

Power of Attorney

Commonly mistaken as an Enduring Power of Attorney, a Power of Attorney is a document that gives another person the authority to act on your behalf in certain circumstances.

A Power of Attorney is only valid while the donor has mental capacity and allows an attorney to, for example, sign documents on the donors behalf while the donor is overseas or physically incapacitated.

These documents are very useful for directors of companies as it allows another person to sign on behalf of that director while they are out of the country (which can be very beneficial for sole traders).

Enduring Power of Attorney

There are two types of Enduring Powers of Attorney.  These are:

• Enduring Power of Attorney in relation to Property; and
• Enduring Power of Attorney in relation to Personal Care and Welfare.

Enduring Powers of Attorney in relation to Property allow a donor to appoint a suitable attorney that will have authority to manage the donor’s property affairs (for example the attorney is able to step into the donor’s shoes to manage bank accounts, sell houses, and manage investments on the donor’s behalf).

An Enduring Power of Attorney in relation to Property can come into effect immediately, or only when the donor has lost their mental capacity.  By choosing to have your Enduring Power of Attorney in relation to Property come into effect immediately, it can make it easier for your Attorney where there is uncertainty as to the mental capacity, especially if capacity changes from day to day.

On the other hand, an Enduring Power of Attorney in relation to Personal Care and Welfare can only come into effect when the donor loses their mental capacity.  An assessment as to mental capacity has to be made by a medical practitioner before this type of Enduring Power of Attorney can come into effect.  Enduring Powers of Attorney for Personal Care and Welfare allow an attorney to make decisions on behalf of the donor as to the donor’s health and wellbeing (for example the attorney would be able to make a decision as to whether the donor needs to be put into full-time care).

Both the Enduring Power of Attorney in relation to Personal Care and Welfare and the Enduring Power of Attorney in relation to Property have a number of customisable options within each document.  Your lawyer will be able to advise you as to the effect and implications of each option and the most appropriate options for your circumstances.

Why do you need an Enduring Power of Attorney?

If you lose your mental capacity and have Enduring Powers of Attorney in place, the only requirement on your chosen attorney is to put the necessary steps in motion to have the document come into effect (see “Enduring Powers of Attorney and Loss of Capacity” below).

If you lose your mental capacity without having an Enduring Powers of Attorney in place, your family or next of kin may need to make a number of applications to the Family Court just to be able to care for you and deal with your property.  These applications include:

• The appointment of a Welfare Guardian;
• A Personal Order to allow for care decisions;
• An Order to Administer Property; and
• The appointment of a property manager.

The starting point for most families is an application to the Family Court to have a Welfare Guardian appointed.  A Welfare Guardian is responsible for support and protection as well as acting in the best interests of the person they are acting for, however they are not immediately entitled to make decisions regarding that person’s personal care or property.  Furthermore, Welfare Guardians essentially have an expiry date and at the end of their term another Court application will need to be completed to either extend the current Welfare Guardian’s term or appoint a new Welfare Guardian at an additional cost.

A Personal Order may also be required in situations where a person needs to go into care or decisions need to be made for that person’s medical treatment.  Generally, a Welfare Guardian appointment and a Personal Order go hand-in-hand.

As at July 2018, if you lose your mental capacity and earn less than $20,000 per annum (either through work or through a Work and Income benefit) but there is no property requiring management that is worth more than $5,000, an application would need to be made to the Family Court for an Order to Administer Property.  If the property or income is worth more than this, there would need to be an application to the Family Court for the appointment of a property manager.

There is no guarantee that the Court will appoint a Welfare Guardian and/or property manager, or make a Personal or Property Order in favour of someone that you may have chosen to appoint as an attorney while you still had your mental capacity.  The costs involved and time required in any Court related process far outweighs the cost of setting up Enduring Powers of Attorney before mental capacity becomes an issue.  Therefore, you can save your family a lot of stress, and money, by setting up Enduring Powers of Attorney while you still have the capacity to do so.

Enduring Powers of Attorney and loss of capacity

When a donor loses their mental capacity, the Attorney will need to take the necessary steps to ensure that the Enduring Power of Attorney, in which they are appointed, comes into effect before they can act on the donor’s behalf.

In order for the Enduring Power of Attorney to come into effect, the first step is to have the donor’s mental capacity assessed by a medical practitioner whose scope of practice includes assessing mental capacity.  The medical practitioner must prepare a certificate in line with the form in the Protection of Personal and Personal Property Rights Act 1988 in order for their assessment to be valid.  We can assist the doctor with the correct form if needed.

Once a valid medical certificate is obtained, your lawyer can provide a certified copy of that certificate and a certified copy of the Enduring Power of Attorney document.  This causes the document to come into effect, allowing the attorney to exercise the powers in that document.

What to do

If you need assistance with any of the above, or would like to set up Enduring Powers of Attorney and/or a Power of Attorney, please get in contact with a member of the Asset Planning Team.

If you would like further information please contact Amanda Hockley on 07 958 7451.

Background

The current Trustee Act 1956 is silent as to whether beneficiaries are entitled to disclosure of particular trust information and documents.  When the law is not clear, the Courts determine what would have been intended by Parliament when passing that particular law.  This is exactly what has happened in the recent Supreme Court case Erceg v Erceg [2017] NZSC 28.

The appellant, Mr Ivan Erceg, was a class beneficiary of two trusts established by his late brother, Mr Michael Erceg.  At the time the trusts were wound up, in December 2010, Ivan was an undischarged bankrupt. Ivan did not receive a distribution from either trust.

Ivan requested certain trust documents be provided to him which the trustees refused to do.  The matter was then brought before the High Court, Court of Appeal and finally, the Supreme Court where a decision was reached regarding those trust documents.

Supreme Court decision

After the High Court finding that Ivan did not have standing due to being an undischarged bankrupt at the time the trusts were distributed, and the Court of Appeal finding that Ivan had standing to request trust documents, Ivan appealed to the Supreme Court.

The Supreme Court held that the Court has to exercise its supervisory judgment regarding disclosure to beneficiaries in the given circumstance.

The Court said that basic trust information should be disclosed to a close beneficiary, dependant on a number of factors.  It was not determined who would be considered a “close” beneficiary and this is likely to be different in every circumstance.

The Supreme Court established the following list of criteria for evaluating an application for disclosure:

• The documents that are sought;
• The reason the documents are being sought;
• The nature of the interest held by the beneficiary seeking access;
• Whether there is any practical difficulty in providing the information;
• Whether the documents sought disclose the trustees reasons for decisions made by the trustees;
• The likely impact on the trustees and other beneficiaries if disclosure is made;
• Whether disclosure can be made while still protecting confidentiality; and
• Whether safeguards can be imposed on the use of the trust documentation, if disclosed to the beneficiary.

The Court also noted that bankruptcy does not affect an individual’s capacity to seek disclosure of trust information from either the Court or trustees of the trust to which they are a beneficiary.

The Court dismissed the appeal having determined that disclosure should not be ordered due to the potential threat to confidentiality, future litigation and lack of necessity.

Trusts Bill

The much anticipated Trusts Bill (the Bill), that has been in the pipeline for some time now, will re-master the current Trustee Act. The Bill is expected to incorporate elements of the Erceg finding.

The current Bill states that trustees will be required to disclose the following to beneficiaries:

• Notification that they are a beneficiary of the trust;
• Contact details of the trustees; and
• That the beneficiaries are entitled to request information from the trustees (it will then be at the trustees discretion as to what information they disclose to that beneficiary).

Following on from the required disclosure above, the Bill sets out that trustees will then need to consider the following factors before disclosing trust information to the beneficiaries:

• The nature of that beneficiary’s interest in the trust and the likelihood of the beneficiary receiving trust property in the future;
• Whether the information is personally or commercially confidential;
• The intentions of the settlor regarding disclosure;
• The age and circumstances of the beneficiary and other beneficiaries of the trust;
• The effect that disclosing the information would have on the beneficiary that is receiving that information;
• The effect that disclosing the information would have on the trustees, other beneficiaries of the trust and third parties (for family trusts, the possible effect on family relationships will also need to be considered);
• The practicality of disclosing the information to all beneficiaries (particularly in trusts with a large number of beneficiaries or unascertainable beneficiaries);
• The practicality of imposing restrictions on the use of the information that is disclosed to the beneficiary;
• The practicality of giving the information to the beneficiary in redacted form;
• The nature and context of the beneficiary’s request; and
• Any other factor that a trustee reasonably considers to be relevant in determining whether disclosure should be made.

How does this affect current trustees?

There has been no clear indication as to when the Trust Bill will be passed as legislation but the current Bill can be used as guide for current trustees regarding possible outcomes.

Trustees should become well acquainted with the disclosure elements of the Bill and implement these as a matter of practice going forward.

If you would like further information please contact Amanda Hockley on 07 958 7451.

The Care of Children Act 2004 makes provision for a parent to appoint “Testamentary Guardians” for their children through their will.  A Testamentary Guardian will become that child’s guardian automatically when the parent dies and will not be required to make an application to the Family Court.  A Testamentary Guardian can be appointed to care for a child up until that child reaches the age of 18 years (or younger in certain circumstances).

What are Testamentary Guardian responsibilities?

Testamentary Guardians are responsible for making decisions relating to the child’s day-to-day care including, but not limited to, where and with whom the child lives, where the child goes to school and decisions relating to medical treatment.

Testamentary Guardians have the same responsibilities as a parent, however they are not automatically entitled to have the child in their direct day-to-day care.  In order for direct day-to-day care, the Testamentary Guardian will need to apply to the Family Court for a Guardianship or Parenting Order.

What to consider when appointing a Testamentary Guardian

Some aspects which you may wish to consider when choosing a Testamentary Guardian include:

• Who is a good role model for your child?
• Who will raise your child the way you would like your child to be raised?
• Who is in the best position to raise your child (both financially and emotionally), and are they in good health?
• If you have an only child, will your child struggle to adjust to a family of, say, five children?  Or will that family struggle to adjust to the new addition?
• If you have more than one child, can you keep the children together under the same Testamentary Guardian’s care?
• Where does the Testamentary Guardian live?
• What values and beliefs does the Testamentary Guardian have?  Are they similar to yours?
• The age of the proposed Testamentary Guardian.  As a minimum, they must be over 20 years old.
• Is the Testamentary Guardian aware of their proposed appointment?  It is best to discuss with the Testamentary Guardian before you name them in your will.

Can the appointment be challenged?

The appointment of a Testamentary Guardian can be challenged by way of an application to the Family Court.

As Testamentary Guardians can be appointed after the death of only one of their parents, the Testamentary Guardian will be a guardian alongside the surviving parent. If the surviving parent disapproves the appointment of that Testamentary Guardian, they can challenge that appointment through the Family Court.

Why are Testamentary Guardians important?

If both parents (or one parent in some situations) die without a Testamentary Guardian appointed, it will be a decision of the Courts to appoint a guardian for your children.  There is no guarantee that your child/children will be appointed a Testamentary Guardian that you would have chosen yourself.  Therefore, it is important to outline your wishes with regards to Testamentary Guardians of your child/children in your will.

If you would like further information please contact Amanda Hockley on 07 958 7451.

The amendments to the Protection of Personal and Property Rights Act 1988 (PPPR Act) came into force on 16 March 2017.  The changes include new plain language forms of Enduring Power of Attorney (EPA) and a plain language explanation of the effects and implications of these.  The idea behind the changes was to make the forms as simple as possible while maintaining legal accuracy and clarity.

The changes made are summarised as follows:

Less restrictive requirements for mutual appointments

The changes will allow the same authorised witness for the respective donors where there is no more than a negligible risk of conflict of interest.

Standard explanations

The changes provide that the donor’s witness may use the standard explanation to explain the effects and implications of the EPA.

Optional provisions revoking previous EPAs and provision for giving notice of this revocation

There will be an option in the new forms to revoke all previous EPAs and for giving notice of this revocation, including after the donor loses capacity.

Duty of attorney to consult

Consultation will be required with any other EPA attorney of the donor (but not with a successor attorney whose appointment has not taken effect).

Medical certificates

The medical certificate must still contain the prescribed information but no longer needs to be in the prescribed form.

Revocation of appointment

A donor will be able to revoke an attorney’s appointment without revoking the EPA if a successor attorney is appointed.  The amendment will clarify that an EPA appointing more than one attorney with several or joint-and-several authority will only cease to have effect when the last remaining attorney’s appointment is revoked by the donor or otherwise ceases to have effect.

If you would like further information please contact Amanda Hockley on 07 958 7451.

Introduction

When a person dies without a Will, administration of the estate is more complicated than if the person had left one.  Dying without a Will is called “dying intestate”.  Due to the complex nature of dealing with an intestate estate, additional information is required throughout the process which can cause significant delays in administering the estate.  In many cases this will delay the distribution of the estate.

Letters of Administration

Where the deceased did not leave a Will (died intestate), the estate is small, there is no interest in land and there are no assets worth more than $15,000, the deceased’s next of kin is able to deal with the estate.  However, if the deceased died intestate and owned land or assets exceeding the value of $15,000 then Letters of Administration are required to administer the estate.

Letters of Administration is a similar process to an application for Probate (where the deceased left a Will), in that the administrators need to apply to the High Court to be appointed as administrators.  However, the Letters of Administration process takes much longer than the Probate process.  Firstly, it must be established that the deceased did not have a will and enquiries must be made to ascertain whether a deceased person has left a will.  The solicitor acting for the estate usually advertises in Law Talk (the leading New Zealand legal magazine).  The size of the estate must then be established to determine whether an application for Letters of Administration is required.

The Administration Act 1969 governs who may apply to be appointed as an administrator of an estate.  The High Court Rules specify the order of priority as to who can apply to be administrator(s). The descending priority is as follows:

• The surviving spouse;
• The children of the deceased;
• The parent(s);
• Brothers and sisters;
• Grandparents;
• Uncles and aunts.

Once it has been decided who is going to apply, consent must be obtained from those with an equal or greater right to apply.  For example, if the person did not have a spouse/partner but did have children, if one or more of them want to apply to be administrator(s) of the estate then all of the other children would need to consent to the application.

A Status of Children search will also need to be carried out by the Department of Internal Affairs and a certificate showing the results of the search must be attached to the application for Letters of Administration.

Once Letters of Administration has been granted by the High Court, the deceased’s estate will be administered in a similar way as with Probate.  However, as the deceased did not leave a Will, the Administration Act 1969 determines who is entitled to a share of the estate and the size of that share.

Distribution in accordance with the Administration Act 1969

Under the Administration Act 1969, an estate does not pass to the surviving spouse.  If there is a surviving spouse and surviving children, the spouse will inherit the first $155,000 of the estate, chattels and a third of the balance of estate.  Two thirds of the estate is inherited by the surviving children in equal shares.  Where there are no children, the spouse would receive the first $155,000 of the estate, chattels and two thirds of the residue.  The deceased’s parents would receive one third of the residue.  The Administration Act 1969 provides for every possible scenario in order to determine who is entitled to receive a share of an estate and the size of that share. In essence, where a person dies without a Will, the government decides how assets are to be divided between family members.

Letters of Administration with Will annexed

Letters of Administration with Will annexed are applied for where the deceased did leave a will but the executors named in that will either died before the deceased or are unwilling or unable to act as executors.  The Will is attached to the Letters of Administration application and once the administrator has been appointed by the High Court, he/she must administer the estate in accordance with the terms of the will.

Resealing of Letters of Administration grants in New Zealand

Dying without a Will where the deceased owned overseas assets can also be extremely complex and cause significant delay.  Letters of Administration must be granted in the country where the original Will is held.  The original copy of those Letters of Administration must then be filed in the High Court of New Zealand together with an application asking the High Court to reseal the grant of Letters of Administration.

The sealed Letters of Administration has the same force, effect and operation in New Zealand as if originally granted by the New Zealand High Court, and the administrator must perform the same duties and be subject to the same liabilities as if the grant had originally been made in New Zealand.   However, because the grant must first be obtained in another country, this creates delay in allowing the administrator to deal with the overseas assets owned by the deceased.

Conclusion

Dying without a Will can be a messy and costly business for those left behind.  The Administration Act 1969 determines who can apply for Letters of Administration to administer an estate and also how assets are to be divided between family members.  This may not be in accordance with the deceased’s wishes, which highlights the importance of having a Will in place to ensure a more simple way of giving effect to ones wishes.

If you would like further information please contact Amanda Hockley on 07 958 7451.

Introduction

Despite increasing enquiries from clients as to whether trusts still work, the short answer is “yes”, but what are the reasons to keep one?

You may have established your trust to protect assets against potential claims by creditors or to provide on-going financial support to a disadvantaged family member?  Another reason may have been to minimise your personal assets so that you could increase the possibility of receiving a residential care subsidy in the future?  Whatever the reason, it may no longer be relevant due to changes in the law, as well as changes in your individual circumstances.

Reasons to keep a trust

Trusts are still very much a relevant tool used to protect assets from unwanted claims.  Despite changes to the law over the years there are still many benefits in keeping a family trust and/or establishing a family trust.  Some of these reasons are as follows:

• Protection of assets against claims from creditors – for example, to protect the family home from the potential failure of a business venture;
• To help to save or to set aside money for specific purposes, such as a child or grandchild’s education;
• To manage the finances of a family member who may not be able to do so themselves (perhaps due to health issues);
• To ensure your children (and not their partners) are protected in relationship property disputes and to keep separate any property that they are inheriting;
• Protecting children that either have been, or are at risk of being, declared bankrupt.  This will allow the trustees to delay distribution of that child’s share until after the child is discharged from bankruptcy;
• Securing “testamentary freedom”.  Although wills are important, a will-maker has no ultimate control over his/her estate (no matter how carefully the will is drafted) due to the provisions of the Property (Relationships) Act 1976 that apply to wills and also the Family Protection Act 1955.

A change in personal circumstances may diminish the need for a family trust and the on-going maintenance it requires may seem like an unnecessary expense.  However, winding up your trust may expose your assets to risk and the protection gained from establishing the trust in the first place may be lost.

Some risks and responsibilities associated with trusts

There are numerous responsibilities associated with establishing and maintaining a family trust, in particular if you remain as a trustee, such as meeting regularly with the other trustees, keeping minutes and general trust administration.

If a trust is not set up correctly or for a legitimate purpose there is a risk that a trust may be declared a sham and potentially “busted open” by the courts.  At the very least it will be more susceptible to unwanted claims.  A trust may be declared a sham when the settlor retains too much control over the trust property.  This is because the purpose of creating the trust is to vest ownership of property in the trustees.

Additionally, a trust will not necessarily protect against claims under the Property (Relationships) Act 1976.  Property that is disposed of into a trust during the relationship or in contemplation of the relationship will still be considered “relationship property” under the Property (Relationships) Act 1976.  That property will then be subject to the equal sharing rule.  The court has additional power under the Property (Relationships) Act 1976 to look past a trust if the effect of the dispositions is to defeat the rights of one of the parties under the Act.

Winding up a trust

When trusts are wound up, the general drivers seem to be that the trust is no longer required as administration costs are too high relative to the recognised benefits, and more recently the anticipated residential care subsidy is not available and so a “trust reversal” is being undertaken before a new application is made.  Other reasons a trust may no longer be useful are as follows:

• There are no longer tax advantages that were prevalent at the time when the trust tax rate was lower than the highest personal tax rate;
• The purposes of setting up a trust in the first place was creditor protection and the apparent risk no longer exists;
• Settlors/trustees are emigrating and there is concern about double taxation.

These are just some examples of ways in which life and the law can change and in doing so, mean that a trust is not as useful as it once was.  However, the costs involved in winding up a trust can be significant and will depend on what is required based on individual circumstances.  There may also be tax implications for winding up the trust.

Whatever the reason for keeping a trust or alternatively winding up the trust, it is important to keep asset protection arrangements under review and update these arrangements for fairness, the passage of time and important events in one’s life, such as marriage, having children, and getting divorced (just to name a few!).  Reviewing asset protection arrangements regularly will ensure that a trust remains fit for its purpose, whatever that purpose may be.

If you would like further information please contact Phil Harris on 07 958 7425.