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WHY YOU NEED A TRUST. Asset Protection Estate & Succession Planning Tax Management Social Benefits Confidentiality. Asset Protection. Business Creditors Liability Claims Relationship Property Claims. Business Creditors. Business Failure Company – Limited liability

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slide2

Asset Protection

Estate & Succession Planning

Tax Management

Social Benefits

Confidentiality

asset protection
Asset Protection
  • Business Creditors
  • Liability Claims
  • Relationship Property Claims
business creditors
Business Creditors
  • Business Failure
  • Company – Limited liability
  • Directors – Personal Guarantees

- Trading while Insolvent

  • Insolvency Act 2006
  • Property Law Act 2007
liability claims
Liability Claims
  • Clients
  • Employees
  • Public
  • Liability Insurance
relationship property claims
Relationship Property Claims
  • Property (Relationships) Act 1976
  • Wide Reaching
  • Pre Marital Property
  • Children’s Inheritances
  • Section 44C
estate and succession planning
Estate and Succession Planning
  • Wealth Protection
  • Certainty
  • Flexibility
  • Business Continuity
  • Tax Liabilities
tax management
Tax Management
  • Taxation of Trusts
  • Income Splitting
  • Tax Avoidance
  • Beneficiary Allocations
taxation of trusts
Taxation of Trusts
  • Beneficiary Income
  • Trustee Income
  • Losses
income splitting
Income Splitting
  • Sliding Tax Scale
  • Aligning Top Personal Tax Rate with Trust Rate
  • Minor Beneficiary Rule
  • Structures
tax avoidance
Tax Avoidance
  • Penny & Hooper
  • IRD Revenue Alert
  • IRD Compliance Focus
  • Appropriate Remuneration for Personal Skill and Effort
  • Commercial Reasons
beneficiary allocations
Beneficiary Allocations
  • Vests Absolutely
social benefits
Social Benefits
  • Working for Families Tax Credits
  • Student Allowances
  • Residential Care Subsidies
working for families
Working for Families
  • Family Scheme Income
  • New Rules
student allowances
Student Allowances
  • Parental Income Test
  • New Rules
residential care subsidy
Residential Care Subsidy
  • Excess Gifting
  • Abolition of Gift Duty
confidentiality
Confidentiality
  • No Public Register
  • Assets held in Trustees names
summary
Summary
  • Imperative for asset protection
  • The sooner the better
  • Useful tools for future planning
  • Still some tax benefits
  • Limited use for social benefits
slide19
HOW TO SET UP A TRUST

&

HOW A TRUST OPERATES

slide20

Certainty of Intention

Certainty of Subject Matter

Certainty of Objects

slide21

Settlor

(Single or Joint)

SETTLORS - MEMORANDUM OF WISHES

Beneficiaries

Trustee(s)

transfer of assets to the trust
TRANSFER OF ASSETS TO THE TRUST

Settlement

  • Essentially a gift

Transfer at Fair Market Value

  • Acknowledgement of Debt & Gifting
the rules
THE RULES
  • Trust Period / Perpetuity Period
    • 80 years / beneficiaries Coming of age 18-25
  • Treatment of Income & Capital of the Trust
    • Classes of Income & Capital Beneficiaries
    • Distribution or Retention of Income & Capital Gains generated from Investments
      • To what end should income or capital gains be used…
the rules1
THE RULES
  • Final Distribution of Trust Funds
    • What Happens on the Vesting Date (final distribution date)
    • Who will be the final beneficiaries
    • Who decides who gets what
    • (will the Trustees be given that responsibility or will it remain with the settlor(s) & be fixed upon their death)
the rules2
THE RULES
  • Management & Administration Powers
    • Trustee Act 1956
    • Unanimous Decisions v Decisions by Majority
  • Resettlement and Amendment of Trust Deed
    • Allowing for changes in personal circumstances or changes in law
the rules3
THE RULES
  • Appointment/Removal of Trustees
    • What if the settlor(s) die?
    • What rights should the final beneficiaries have?
the rules4
THE RULES
  • Power to Appoint or Add/Remove Beneficiaries
    • Ability to appoint a beneficiary as a final (capital) beneficiary
  • General Clauses
    • Conflict of Interest – Independent Trustee
    • Indemnity – Trustee liability & Trust Assets
    • Remuneration – Compensation for Professional Services
trust operation
TRUST OPERATION
  • IT’S IN THE HANDS OF THE TRUSTEES

Advisors advise - TRUSTEES decide

  • Minimum Requirements for Active Management
    • Annual Trustee Meetings
    • Keeping of Trust Accounts
    • A Trust Management Plan
trust operation1
TRUST OPERATION
  • Best Practice Fundamentals
    • Providing a secure & accessible place for key trust documents
    • Maintaining a separate trust bank account
    • Meeting at least annually
    • Retaining all records that pertain to the making of a decision
    • Maintaining a schedule of key beneficiary information
      • DOB / Address / Living Situation / Educational Needs / Dependants
trust operation2
TRUST OPERATION
  • Trustee Meetings & Resolutions
    • Seek out Professional Advise in Advance
    • Prepare an Agenda
    • Meetings are Essential for the Review Of:
      • Annual Accounts & Tax / Investment Strategy / Gifting Programme / Income & Capital Distributions or Advances
    • Resolutions are essential for:
      • Borrowing Money, Buying/Selling Property or Investments
  • (meetings via email can be useful & provide an appropriate paper trail for decisions)
slide31
Trustees

and

Beneficiaries

slide32

NATURE OF A TRUST

  • What it means to be a Trustee
  • The status of a beneficiary in a Trust
slide33

NATURE OF A TRUST

  • A relationship established by a settlor but it is essentially between the trustees appointed to care and manage property and entrusted for them to hold
  • and the beneficiaries for whom the property is ultimately held.
slide34

Making a Will or settling a Trust

  • Provide for your children and grandchildren
  • Protect the equity /wealth accumulated over a lifetime
  • Retain significant assets
    • such as a business or farm
slide35

Trust Advantages:-

  • Put in place now while you have a clear plan for your family
  • Protect you and a surviving spouse in old age
  • May help protect your children’s inheritance
  • Give confidence that only your beneficiaries will inherit
  • Trustees must act in the best interests of the beneficiaries
slide36

The Nature of a Trust

  • A relationship between the trustees appointed to care and manage property and entrusted for them to hold
  • And the beneficiaries for whom the property is ultimately held.
slide37

Who can be a Trustee

  • A trusted friend – familiar with your financial circumstances & the family
  • Your lawyer, accountant other professional adviser ( if they are prepared to do so)
  • A trustee company operated by your professional advisers
  • A separate trustee company specifically for your trust
  • A trustee company such as Guardian Trust, Trustees Executors, Public Trust & Prudential
slide38

Trustees need to be pro-active

  • Familiar with the Trust Deed and who the beneficiaries are
  • Ensure ownership of the Trust assets is under their care
  • Contribute to and review all investments – act prudently
  • Aware of family circumstances
slide39

Trustees need to be pro-active

  • For a trust that operates a business – be very aware
  • Ensure that all trustees are unanimous and act in the best interests of the beneficiaries.
  • Record decisions and be aware of the financial state of the Trust.
slide41

The Rights of a Beneficiary

  • A controversial matter
  • Fixed interest / Discretionary interest
slide42

The rights of a beneficiary

  • To always be considered in the deliberations of the trustees
  • To be treated impartially (unless the deed permits otherwise).
  • To be informed – to know they are beneficiaries
  • Entitled to
    • Financial statements
    • Copies of the Trust deed and any variations, including the names of the trustees
    • Details of distributions
slide43

Balance Perspective

  • The fiduciary obligation to inform must be balanced against the need to know. Matters of confidentiality
  • The effect of knowledge on a beneficiary.
slide45

BACKGROUND

  • Applied since 1885
  • Protection of Estate Duty base
  • Expensive to Administer
  • Minimal Revenue
  • Antiquated System
slide46

SITUATION NOW

  • Repealed from 1 October 2011
  • Documentation still required
  • Solvency Statement
slide47

REASONS

  • Matrimonial
  • Creditor Protection
  • Rest Home subsidy eligibility
slide48

MATRIMONIAL

  • Covered in later presentation
  • Power of Section 44
  • Courts view
slide49

CREDITOR PROTECTION

  • Unscrupulous disposition of property
  • Remedies for Creditors
  • Legitimate dispositions

Trust

Donor

Property

Debt

slide50

REST HOME SUBSIDYS

  • Gifts within 5 years $6,000 per application
  • Gifts beyond 5 years $27,000 per application
slide51

Examples

  • May 2004: Trust initially owed $500,000 (Deed of acknowledgement of debt)
  • May 2004: Trust received gifts of $54,000 Balance of Debt $446,000
  • May 2005: Trust received gifts of $54,000 Balance of Debt $392,000
  • May 2006: No gifting that year
  • May 2007: Trust received gifts of $54,000 Balance of Debt $338,000
  • May 2008: Trust received gifts of $54,000 Balance of Debt $284,000
  • May 2009: Trust received gifts of $54,000 Balance of Debt $230,000
  • May 2010: Trust received gifts of $54,000 Balance of Debt $176,000
  • May 2011: Trust received gifts of $54,000 Balance of Debt $122,000
  • May 2012: Trust received gifts of $122,000 Balance of Debt $0