How to Conduct a Review of Your Family Trust

23 April, 2013 | Peter Smith

The law on trusts is always changing so it is a good idea to review your trust affairs regularly and ensure that you are getting the most out of your trust as well as meeting all legal requirements.

Gifting

In 2011 gift duty was abolished, so the there is no longer gift duty on gifts over $27,000.00 to your trust. You now have two options, whether to continue your existing gifting programme or whether to do a super gift. Even though there is no gift duty there are still many things to consider when making your decision. Each decision will be unique and will depend on your reasons for setting up your trust.

A super gift means that you forgive all of the amount owing to you by your trust with the effect that the trust will no longer owe you any money and will own all the trust property unencumbered by any debt. When deciding whether to do a super gift you should consider your reasons for setting up the trust because although a super gift it may benefit you in some ways, it may hinder you in others. You should discuss your reasons for setting up the trust with your lawyer, who will be able to advise you on the positives and negatives associated with each option based on your personal circumstances.

Review of your Trust Deed

Some trust deeds are very old, and worded very narrowly, restricting what the trustees of your trust can do. If your trust deed is archaic and there is no power to alter the trust deed, there is usually the power to resettle the trust fund onto a new trust, whose trust deed can be more modern. It is always important that your actions as trustees comply with the powers set out in the trust deed.

Review of Beneficiaries

It is important to check that the beneficiaries of your trust are those people whom you wish to leave your assets to. Often we find that future spouses (should one of you die and the other remarry) and spouses of children are included as beneficiaries of the trust. As many trusts are set up to protect family assets, this may not be desirable. Beneficiaries can be removed from the trust deed if there is provision in your trust deed that allows this to occur.

Power of Appointment

If the deed of trust does not state who you would like to have the power of appointment of trustees of your trust once you have died, this power usually passes to either the executors who are named in your Will or the remaining trustees. They will then have the power to appoint trustees of your trust, who will then have the power to distribute the trust fund as they see fit. Without any direction this may be done in a way that you did not wish.

Memorandum of Wishes

memorandum of wishes provides direction to the remaining trustees (once you have died) as to how to administer the trust fund upon your death. This document helps ensure that your trustees know which of the beneficiaries you want to receive trust assets and when they are to receive them. Whilst a Will deals with property in your personal name, a Memorandum of Wishes deals with property that is owned by the trustees of your trust. It is important however to align both your Will and your Memorandum of Wishes so that there is no conflict.

It should be noted however that a Memorandum of Wishes is not binding on the trustees who are left on your death. It is only a direction to them as to how you wish the trust fund to be distributed. It is important therefore to only appoint people whom you have the utmost faith in and whom you trust absolutely to look after any person or persons you may leave behind. Should you prefer your wishes to be legally binding, you will need an irrevocable Deed of Distribution which mandates precisely how the trust assets are to be distributed on your death.

Deed of Distribution

nlike a Memorandum of Wishes, a Deed of Distribution is binding on the trustees of the trust and sets out where, when and to whom a distribution is to be made, either whilst you are living or on your death. Once you have died however, a Deed of Distribution must be fulfilled by the trustees even if the circumstances of the beneficiary or beneficiaries noted in the Deed have changed. You will need to be quite certain about the distribution of the trust before entering into a Deed of Distribution.

Wills

Everyone should have a will. If you have a trust, it is important to consider your trust’s deeds when drafting your will, particularly any deed of distribution or memorandum of wishes. If you have an ongoing gifting programme, your will should forgive all debts owing to you by the trust so that this money doesn’t fall into your estate. There is also an option to gift all of your assets into your trust on your death, which is something to consider if your children are still young, or if your children are in an unstable relationship, or if you have children from more than one relationship. As mentioned above, the executors of your will may also have the power of appointment of trustees of your trust so it is advisable to have the same people involved as executors of your will and trustees of your trust.

Powers of Attorney

There are three types of powers of attorney:

• Enduring power of attorney in relation to personal care and welfare;
• Enduring power of attorney in relation to property; and
• General power of attorney and deed of delegation.

The enduring powers of attorney allow someone to act on your behalf if you are mentally incapable of doing so. The general power of attorney and deed of delegation allows someone to sign documents on your behalf, both personally and as a trustee, if you instruct them to do so. These are essential documents in any property protection plan.

For assistance with conducting a review of your trust affairs, contact experienced family trust lawyer, Peter Smith by phone on 09 837 6882 or email peter.smith@smithpartners.co.nz