Asset Protection

Family Trusts

Family Trusts are a topical item these days; it seems if you haven't got one there is something wrong. But the question should be really asked - do you really need one? Obviously costs are incurred in the creation of a trust, placing assets in the trust and its maintenance. Therefore, we believe clients should identify what a trust may do for them. If the answer to that is very little, then probably a family trust is not one of life's necessities.

A short list of some of the reasons why people may gain value from a family trust are as follows:

Creditor protection particularly for those in business.
Protection and sheltering of assets, particularly in old age for welfare benefits.
Controlling the disposition of your estate after death and protection against family protection claims.
Protection against matrimonial property claims including giving your children protection after your death for their inheritance.
Providing a fund for your beneficiaries without determining during your lifetime who may be in greatest need.
Taxation advantages.

The law, particularly in relation to taxes, social welfare issues and even matrimonial property is always changing. One cannot be certain that a structure set up today to provide for a particular outcome will still achieve that outcome in say 20 years' time against a background of changes in the law.

In fact, in some circumstances, placing assets, particularly land, into family trusts can have disastrous (taxation) consequences. For example some sections of the Income Tax Act exempt certain types of land development from taxation if the development was commenced more than ten years after the land was acquired. Transferring land to the family trust will only start the ten-year clock running again.

As a result we don't always advise people to create family trusts and a careful consideration of what benefits and downsides setting up a trust will achieve is always required.

Wills

When should I make a Will?

The time to plan your estate and make a will is when you least expect to need it.

Whatever your assets, have you considered who should inherit them at the time of your death?

No one likes to face up to the inevitability of one's death, but a sensible person is aware of the disastrous situation that could arise for those left behind if no Will has been prepared.

Despite the fact that so many of our young people are at risk on the roads, playing sport and travelling, few make out a Will, even though from age 18 they legally entitled to do so.

Any person may make out a Will on attaining 18 years of age, or upon marriage prior to that. Unmarried minors of 16 years may make out a Will subject to the approval of the Public Trustee or a District Court.

What is a Will?

A Will is the document whereby you (the Testator) authorises persons (your Executors) to apply to the High Court for authority to deal with your assets (Probate) after your death and to distribute those assets to parties (Beneficiaries) in accordance with your Will.

How often should I revise my Will?

Your Will should be reconsidered any time there is a change in your family or personal circumstances. We remind clients at five yearly intervals to review their Wills to ensure that they have made adequate provision for changed circumstances.

Who should be my Executor or Executors?

You may appoint a close member of your family as Executor. His or Her responsibility is to see that your wishes, as expressed in your Will are fully carried out. Adult children may be suitable Executors but there are obviously many special circumstances where outside Executors such as members of our firm are preferable. A trustee is usually also appointed and is legally bound to administer the assets of the Trust on behalf of the beneficiaries. In most wills the people who are executors are also the trustees.

Do I need to list every asset?

Specific assets should not be mentioned apart from those circumstances where there are particular gifts, which you may wish made to particular Beneficiaries. By referring to the Estate assets in general terms the need to update the Will as assets are disposed of or altered, does not arise.

Should I appoint Guardians?

Many parents have discussed what is to happen to children if both of them were suddenly killed in an accident. Some parents have close friends or relatives who have expressed a willingness to look after infant children in the circumstances and in these cases confirmation of the guardianship can be included in the Will. The provision in a Will appointing Guardians needs frequent review to ensure the Guardians proposed are still appropriate.

If I do not have a Will does that mean the Government takes my assets?

If a person dies without a Will (the term for which is "dying intestate") the Administration Act provides a list of Beneficiaries in order, starting with a spouse, children, parents, brothers and sisters uncles and aunts. It is only when the list is exhausted and no such relatives located that the Estate becomes government property.

Am I restricted in choosing my beneficiaries?

There is no provision in New Zealand law requiring you to leave a specific amount of your Estate to any particular Beneficiary. Each person has the freedom to dispose of assets as he or she thinks fit, subject to:

the possibility of a claim by a spouse under the Matrimonial Property Act
a claim under the Testamentary Promises Act in relation to a promise of a benefit under a Will made by the Testator in return for specific services provided during the Testator's lifetime
he possibility of claims brought by specific classes of relatives under the Family Protection Act on the basis that inadequate provision has been made for them in breach of a Testator's moral duty.

In each case any claim has to be established to the satisfaction of the court. In a claim under the Family Protection Act in particular the court does not rewrite the Will but considers whether the Will requires adjustment to fulfil the duty of the testator.

De Facto couples should note that Matrimonial Property and Family Protection legislation does not cover de facto relationships and a de facto partner may have difficulty making a claim against the estate of a deceased de facto partner.

Can I make my own Will?

Anyone can prepare their own Will and there are various forms available at most stationers' shops. In our experience the correct drafting of a Will is not an easy exercise and the "do it yourself" varieties that we have seen are usually unclear in their terms and incorrectly executed. The Will is invalid if incorrectly executed. If the terms of a Will are not clear, application to the High Court would generally be sought for direction as to how the Estate is to be dealt with and distributed.

Is my Will registered?

The Will is not registered anywhere. We recommend that the Will be held in a safe place.

Does marriage revoke a will?

A Will is automatically revoked unless it is made specifically in contemplation of a marriage. But a will is not cancelled upon separation, the dissolution of a marriage or upon entering a de facto relationship. Dissolution of a marriage revokes a Will only to the extent of the benefits provided to the previous spouse under the Will. The Will remains intact in all other respects. Both partners in any new relationship, but particularly a de facto one should give urgent consideration to a review of their Wills.

Does selling or buying a home affect my will?

Any major change in personal circumstances, such as changing your home, selling or buying shares, travelling overseas or planning retirement should be an occasion to revise your Will.

Enduring Powers of Attorney

An enduring power of attorney is an essential document in planning for your life. It sets out your wishes as a guide, in case you can't continue to manage your own affairs for some reason.

There are two types of enduring power of attorney:

Property enduring power of attorney
Personal care and welfare enduring power of attorney

A Property Enduring Power of Attorney

A property enduring power of attorney lets you appoint somebody else to act on your behalf in relation to your property.

You can appoint any individual over twenty years of age, or an organisation to be your property attorney.

You may allow your attorney to have full or partial control over your assets. The amount of control, and when it comes into effect, are totally up to you.

You decide whether your property enduring power of attorney should come into effect: immediately,

at a given time, or
only if you become mentally incapable.

As long as you are capable of doing so, you can cancel or change the conditions of your property enduring power of attorney at any time.

A Personal Care and Welfare Enduring Power of Attorney

A personal care and welfare enduring power of attorney means that someone can make the decisions needed if you can't look after yourself. This could be because of serious illness or accident.

Only individuals (not organisations) are able to be appointed your attorney. We advise you to select a member of your immediate family, or somebody that you trust implicitly to make the best decisions for you.

A personal care and welfare enduring power of attorney only comes into effect if (and when) you become mentally incapable.

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