Trustees frequently ask us whether they would be personally liable if someone is injured on a course run by a trust where they are a trustee. For example, imagine a youth focussed trust and they employ Jane, she takes a group of children on a hiking trip. During this a child is injured in an accident. Could the parents of the child make a claim against the trust or even the trustees personally? Let’s look at what could happen in New Zealand.

The role of ACC

The accident to the child would most likely be covered by the Accident and Compensation Act 2001 as a personal injury. This means that the parents would be prohibited from bringing independent proceedings against the trust and the trustees. Therefore, trustees are protected from third party claims relating to accidental personal injury where ACC would cover the accident. For more on this see ACC’s guidance here. This would not be the case in other countries where a claim might be possible.

What about WorkSafe?

Trustees may have proceeding brought against them by WorkSafe New Zealand if they find that the trustees breached the Health and Safety at Work Act 2015. This is because the trustees are ultimately in control. WorkSafe may pursue action against trustees if they find the trust failed to ensure, so far as was reasonably practicable, the health and safety of workers and others, such as those attending courses they organise. For example, in 2017, WorkSafe accepted an enforceable undertaking from a Trust Board following its investigation into an accident in which students were injured during a school production. The accident occurred during Saint Kentigern School’s performance of Sweeney Todd when two students were hospitalized after their necks were slit with a sharp shaving razor which was wrapped in duct tape. Despite the numerous incidents there was a failure to report and investigate these incidents. WorkSafe launched an investigation into the incident and concluded that the school failed in its duty to students and the school Trust Board accepted these findings.

Conclusion

Trustees may be liable if they are found to have breached their duties to ensure the health and safety of those they are responsible for. For more on these issues and the Health and Safety at Work Act 2015, as it applied to PCBU’s (a person conducting a business or undertaking) see our article here. Ultimately it may be wise for trusts to get a specialist Health and Safety advisor to provide guidance in this area.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist you, please feel free to contact Steven Moe stevenmoe@parryfield.com

The New Trusts Act 2019 has implications for all trustees and their obligations whether private trusts or charitable trusts. In this article we discuss the impacts it will have on charitable trusts. The Act came into force on the 30 January 2021 so trustees need to understand the changes now in place.

What are key changes to duties?

The Trusts Act 2019 imposes some key changes to the duties of trustees. These duties are set out in Sections 21 to 38 of the Act and are separated into 5 mandatory duties and 10 default duties. Mandatory duties cannot be modified or excluded by the terms of the trust. However the default duties can be modified.

Trustees should become familiar with the duties imposed on them by the new rules. The mandatory duties to be performed by the trustee include that trustees must: know the terms of the trust; act in accordance with the terms of the trust; act honestly and in good faith; act for the benefit of the beneficiaries or to further the purpose of the trust and exercise their powers for a proper purpose. The latter is very important for charities as a trustees duty should always be performed in the light of bringing about the charitable purpose of the charitable trust.

The default duties, that may be excluded or modified by the trust deed, are that trustees must: exercise reasonable skill and care; invest prudently; not exercise trustee powers for their own benefit; consider their exercise of power; not bind trustees to a future exercise of discretion; avoid conflicts of interest; act impartially; not profit from their position; not act for reward; act unanimously. If a trust deed is not clear on these duties then trustees could consider modifying their rules. For example, it may be appropriate to be clear that decisions do not need to be unanimous. In our view some of these duties are expressed with private family trusts in mind so modifying for a charitable trust context will often be important to do.

The new Trusts Act 2019 also sets out a list of ‘core documents’ the trustees must keep. These include:

The trust deed and any other document that contains terms of the trust
Any variations to the trust deed or the trust
Records of the trust property that identify assets, liabilities, income and expenses
Any records of trustee decisions
Any written contracts entered into during the trusteeship
Any accounting records and financial statements
Documents of appointment, removal and discharge of trustees
Any letter or memorandum of wishes from the settlor
Any other documents necessary for the administration of the trust
Any documents referred to above that were kept by a former trustee during their trusteeship

While all trustees must have a copy of the trust deeds and its variations, the core documents may be held by one trustee on behalf of all of them. The documents should be made available to the other trustees upon request.

How else will this impact on Trustees of Charitable Trusts?

The Trusts Act applies to Charitable Trusts and in turn its trustees are bound by the mandatory and default duties set out in the Act. This will impact trustees of charitable trusts as it imposes more onerous duties on trustees, increases their responsibilities, while also providing more guidance as to their obligations. The one duty that will not impact trustees of Charitable Trusts is provided for by Sections 51 to 55 of the Trusts Act 2019. This is the duty of trustees to disclose information to the beneficiaries which does not apply to Charitable Trusts or its trustees.

Is this an opportunity?

Maybe the glass is half full here. This is an opportunity for trustees to revisit the terms of their trust deed to determine what duties must be complied with and what duties may be excluded or modified. For example, the decision making duty should be varied to ensure decisions made by the charitable trust can be decided by a majority. The trustees should make sure they hold all the core documents required by the Act.

Other resources?

The following resources may help!

See the new Trusts Act 2019 here
To see a Charities Services Guidance on what the new Trusts Act means for registered charities click here
Hui E website has good resources here
Here is an article we did on liability of Trustees
An article on governance for faith based organisations
An article we did on governance for trustees here
We also did an article on the reporting obligations of charities click here

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Steven Moe – stevenmoe@parryfield.com

Are you a beneficiary wondering what trust information you are entitled to, or a trustee concerned with what information you may be required to provide to a beneficiary? This article considers the current New Zealand legal position on the rights that beneficiaries have to trust information, and the changes that will result from the new Trusts Act, which was passed into law this year (2019).

In the past, it has often been the case that only the trustees knew about the family trust “secret”. The new Trusts Act dramatically changes this from 30 January 2021 by developing further the current legal principles established in the following 2 cases:

Erceg v Erceg

This 2016 Supreme Court case involved the estate of Michael Erceg, a beer magnate who died in a helicopter accident. The Court said that the trustees of a trust must give beneficiaries certain basic trust documents on request to ensure that a trust is administered properly and the trustees are held accountable for their actions. Ultimately, the ability to see trust information is based on the status and motives of the beneficiary applying to the Court. In this case, the Court refused to grant Ivan Erceg’s request for trust information because his conduct toward the other beneficiaries was confrontational and “he was on a fishing expedition”. However, as a primary beneficiary of the Accorn Foundation Trust, he would otherwise have had a good case for receiving basic trust documents, comprising:

The trust deed;
Any variations to the trust deed;
Financial statements; and
Potentially minutes of meetings/resolutions, but with reasons deleted.

Addleman v Lambie Trustee Limited

In this 2019 Court of Appeal case, Mrs Addleman was both a discretionary and a final beneficiary of her father’s Lambie Trust, along with her estranged sister, whose company Lambie Trustee Limited was the Trust’s sole trustee. Mrs Addleman only became aware of the Trust’s existence when she received 4.25 million as a “full distribution of funds” from the Trust. Wanting to know more, she initially requested comprehensive information about the Trust from its inception 12 years earlier.

Applying the principles established in Erceg above, the Court said that as a close beneficiary of the Trust Mrs Addleman was entitled to see trust documents, albeit within a narrower category than those she initially requested, and that she should receive the following:

Financial Statements;
Minutes of meetings, but without reasons for trustee decisions; and
Any legal opinions and other advice obtained by the trustees which was funded by the Trust.

New Trusts Act Changes

The new Trusts Act significantly changes the rights of beneficiaries to trust information. While trusts were once allowed to more easily remain a secret, under the new Trusts Act trustees must disclose basic information to at least one beneficiary without a request being made. This is the Presumption of Notification.

It is important to note that there is a second presumption created by the new Trusts Act, which requires a trustee to provide additional information within a reasonable time to a beneficiary who requests it. This is the Presumption of Disclosure.

What is “basic trust information” under the new Trusts Act?

Basic trust information is the information that tells you about the trust – what its purpose is, who the parties to the trust are, etc. It includes:

The fact that you are a beneficiary;
The names and contact details of trustees;
Details of each appointment, removal and retirement of a trustee as it occurs; and
The right to request a copy of the trust deed and additional information about the trust’s administration and its assets (but not reasons for trustees’ decisions).

However, as can be seen from the following, these two presumptions may be totally or partially ignored. Trustees can rely on numerous factors to deny beneficiaries this basic trust information, such as:

The nature and interests in the trust held by both the beneficiary applying for information and the other beneficiaries of the trust;
Confidentiality;
The age and circumstances of the applicant and the other beneficiaries;
The effect of giving the information on all related parties;
The practicality of giving the information;
The nature and context of the request;
Any other factor that the trustee reasonably considers.

Differences between the current Erceg Approach and the new Trusts Act

In the Erceg case, the Court said that although a primary or close beneficiary can ask for, and expect to receive, basic trust information on request, they’re not automatically entitled to it. Disclosure will depend on the wider interests of all beneficiaries as a whole. So currently, there is no Presumption of Disclosure.

However, the Trusts Act goes further than the Erceg case and ensures that at least one beneficiary must receive basic trust information on request (Presumption of Disclosure), but also, even if none has been requested (Presumption of Notification). This is to ensure that the trustees are kept accountable and are discharging their obligations to the beneficiaries properly.

If the trustees believe that one or more of the above factors justifies their denying such information from all beneficiaries for more than 12 months, then they must apply to the High Court for directions. The Court then decides if the trustees’ decision is reasonable and if so, how they can otherwise be held accountable for their actions if none of the beneficiaries are advised of their status or informed of basic trust information. Applying to the Court can be avoided if such information is disclosed to at least one beneficiary.

In summary, under the New Trusts Act, as a beneficiary, you can expect to see the trust deed, names of the current trustees and some financial information unless the trustees consider otherwise under the above list of factors.

When the new Act is fully operative, be aware that the obligations of trustees, and in particular the rights of beneficiaries, are set to dramatically change, as may the dynamics of some family relationships.

Every situation is unique, so please discuss your particular case with a professional advisor who can provide a tailored solution to you.

Pat Rotherham – patrotherham@parryfield.com

Trustee Duties

The Trustees have certain duties and liabilities placed on them under the relevant Trust Deed, New Zealand Legislation and Common Law (decisions of the Courts in New Zealand and Overseas). These duties include:

– to know the trust deed, the trust assets and liabilities;
– to advance charitable purposes;
– fiduciary duties of honesty and loyalty and acting in the best interests of the trust;
– exercise care, skill and prudent diligence;
– act impartially amongst beneficiaries;
– to sell wasting property;
– to exercise reasonable care;
– to insure assets and keep property safe;
– to keep inventories;
– to invest within a reasonable time;
– to repair trust property;
– to invest prudently;
– to not delegate;
– to act jointly where there is more than one trustee;
– to not profit from trust property;
– to be accountable; and
– to be honest, loyal, diligent and prudent in carrying out the terms of the trust.

If you would like further explanation of any of these duties, please get in touch with us.

Generally a charitable trust will have between 3 to 7 trustees. Usually trustees are a mix of professional executives and non-executives. They will be held to the same standard of care in their actions as applies to directors of a business (there is not a lower standard due to it being a charitable trust).

Trustee Liability

Trustees are representatives of the Trust. As noted above when discussing duties, they act as fiduciaries who hold the trust property for the benefit of the charitable purpose set out in the deed. It is important that trustees clearly understand what those purposes are and do not overreach and act in a way that is further than what was set out in the deed. If trustees fail to perform their duties then they may be subject to proceedings taken out by interested persons. Ultimately the New Zealand Attorney General has certain rights as the ultimate power ensuring accountability. It is common for trust deeds to include some limits on trustee liability. However, as mentioned before it is possible that trustees will be jointly and severally liable where a trust fails to account for GST, ACC levies or PAYE payments.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. We offer advice on all aspects of charitable trusts and are happy to answer any questions that you might have. Contact Steven Moe at stevenmoe@parryfield.com or 03-348-8480 for more information.

This article is the second in a series on charitable trusts. To have a look at our first article which sets out the advantages and disadvantages of charitable trusts, click here.

KiwiSaver is a superannuation scheme in New Zealand that is popular with many Kiwis not only for saving for retirement, but also for first home buyers saving for a deposit. But have you ever considered what happens if you pass away before you have withdrawn your KiwiSaver funds? What happens to the money in your KiwiSaver account when you die?

Where you have signed a Will, upon your death the full balance of your KiwiSaver will be paid to your estate. If the balance in your account is less than $15,000.00, it will be able to be paid automatically. If the balance is more than $15,000.00, however, probate (an order from the court allowing the distribution of your account funds) will need to be issued.

What happens if you don’t have a Will?

It is important to note that if you pass away without a Will (this is called “intestate”), the process will be more complicated and expensive. You should also be aware that without a Will, you cannot be assured that your assets will be distributed to those whom you intend. For more information on the importance of having a Will and what happens if you pass away intestate, see our article here.

Example:

Jane is in her early twenties and is saving up for a deposit for her first home. Jane currently has $16,000.00 in her KiwiSaver. She also has $12,000.00 in a savings account. She has never really considered signing a Will, and is planning to look into it once she has purchased her home and is all settled in. However, Jane is in a tragic car accident and is killed instantly. Because she passed away intestate, her assets were distributed in accordance with the Administration Act 1969. Several issues arose from Jane passing away without a Will that could have been avoided:

1. Jane had intended for her assets to be distributed to her niece upon her death. Because she had not expressly stated those wishes in a Will, her assets were instead distributed equally to her parents.

2. Secondly, because Jane’s assets exceeded the $15,000.00 threshold, her family had to apply to the court for probate. Because she had not signed a Will appointing an executor, her family also had to apply to the court for the appointment of an administrator – someone who is given authority by the court in the absence of a Will to deal with the estate. This was a costly process (both financially and time-wise) and caused a lot of stress for her family that could have been avoided if she had signed a Will.

How can we help you?

We would advise that you sign a Will if you are over 18 years old, even if you only have a few assets.

If you would like any assistance with drafting and signing a Will, reviewing your existing Will, or if you have any questions in relation the issues raised in this article, please feel free to get in touch. We have teams in our Riccarton, Rolleston and Hokitika offices that would be happy to assist you.

For more information, please feel free to contact Paul Owens – paulowens@parryfield.com or Luke Hayward – lukehayward@parryfield.com or give us a ring on 03 348 848

New International Tax Legislation

Under FATCA (Foreign Account Tax Compliance Act), adopted by New Zealand in 2014, the United States aims to detect and prevent tax evasion by US citizens and tax residents on their worldwide income from financial assets owned by an offshore entity, which they control e.g. a family trust or company settled/incorporated in New Zealand.

Additionally, from 1 July 2017, New Zealand endorsed the OECD’s standard Automatic Exchange of Financial Information in Tax matters (AEOI), which incorporates the Common Reporting Standard (CRS),a global version of FATCA. New Zealand is 1 of 101 OECD nations to have signed a multi-lateral agreement to combat offshore tax evasion on a global scale. All citizens of these countries are subject to the same level of tax scrutiny in New Zealand and the other member or participating countries, as are Americans under FATCA.

All entities (family trusts, companies and partnerships, but not individuals) have to comply with this legislation. Al professionals, such as ourselves, accountants, investment fund managers/advisors etc. needs to advise their “entity” clients of their obligations under this complex and far-reaching legislation.

Is your trust/company/partnership (“entity”) a Financial Institution under FATCA or CRS?

It is important to know whether or not your entity (trust, company, partnership) is either a Foreign Financial Institution (FFI) under FATCA or a Financial Institution (FI) under CRS, both or neither. If your entity is a FFI then it needs to register on the United States’ Internal Revenue Services (IRS) site. If your entity is a FI under CRS then when the IRD site is up and running next year, your entity will have to disclose to IRD all financial information and personal details for those trustees and beneficiaries who are residing overseas in one of the 100 other participating jurisdictions combating offshore tax evasion.

We are in the process of corresponding with all of our trust clients and providing them with a form to assist the trustees decide whether or not their trust has to register on the US site and ultimately, report to our IRD under CRS. If you are a trust client of ours, and you have not yet received this form, please contact us urgently.

Can this legislation be ignored?

Unfortunately, registration on the IRS site under FATCA is compulsory even if your trust is not “controlled” by any US tax resident or citizen, provided:

(a) It has some financial assets (shares, bonds, term deposits) managed by an investment advisor/fund manager OR an FFI, such as one of our corporate trustees is one of the trustees of your trust AND

(b) More than 50% of the trust’s gross income for the proceeding calendar year comes from financial assets (excluding rental from property).

Unfortunately, (b) above will be satisfied even if the only income-producing asset of the trust is a bank account which earns minimal interest. However, if the trust or other entity earns the majority of its income from residential rentals, it will not satisfy (b) above.
Once registered, no further personal information disclosure is needed, if there is no such “control” by a US tax resident or citizen. By contrast, registration on the IRD site under CRS is required only if your entity is “controlled” by anyone who resides overseas (but not the US).

What if my entity is not a FFI or FI?

If your entity is neither a FFI or FI then it will, by default, be a NFFE (Not a Foreign Financial Entity) or a NFE (Not a Financial Entity). As such, your entity will not have registration requirements, but may have reporting obligations to other FFI’s/FI’s such as a bank with which your entity has funds or an investment house/advisor with whom your entity has a share portfolio. Such institutions are in the process of sending, and will continue to send, to their customers/clients Self-Certification forms similar to those we are sending to our client trusts. If the completion of these forms conclude that your entity is a passive NFFE/NFE then it must, on request, disclose details of US and other overseas controlling persons to the entity’s bank or investment advisor etc., which report to IRD. If however, less than 50% of your entity’s gross income for the past calendar year is from passive income (including rental from property) then it will be deemed an active NFFE and will have no reporting obligations, even if it is “controlled” by a US or other overseas resident person.

These are complex matters, but compliance is mandatory with not unsubstantial fines able to be imposed on those who breach their obligations under this legislation.
Should you have any query regarding these matters and how they may affect your trust, company or partnership, then please consult with us because to ignore this legislation is clearly, not an option.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance, please contact Pat Rotherham at Parry Field Lawyers (348-8480) patrotherham@parryfield.com

Why do people form Family Trusts?

People form family trusts for a wide variety of reasons – most commonly these tend to be for the purposes of:

protecting personal assets against business risk;
maintaining control over the distribution of assets within a family after death; or
safeguarding against relationship property claims.

We also receive enquiries from clients from time to time asking whether a family trust can assist in preserving their eligibility for rest home subsidies should they need care in the future. We have always stressed that this has never been a particularly good “primary” reason for forming a family trust – though trusts have on occasion proved useful for this purpose.

However, the policy approach to trusts taken more recently by the Ministry of Social Development (MSD) – backed by a decision of the New Zealand Court of Appeal – means that trusts are becoming less and less effective when it comes to rest home subsidies.

Background

Before gift duty was abolished in 2011, it was common for people to sell their home to a family trust in exchange for a “debt” back to them for its market value. While the debt remained a personal asset, this was then forgiven (or “gifted”) in annual increments of $27,000 per person (or $54,000 per couple), being the maximum amount a couple could gift without incurring gift duty.

This proved a reasonably effective method of transferring assets from personal ownership to trust ownership. Once a debt was forgiven in full, the home could be excluded as a personal asset when an application for a rest home subsidy was made – with the effect that some people then met the asset thresholds for obtaining a rest home subsidy (currently $224,654).

The annual “cap” on gifting meant that it still took considerable time for the trust to obtain outright ownership of the assets – for example if, including property and business interests, a couple owned $1 million of assets, it would take nearly 20 years to forgive this debt in full.

Once gift duty was abolished, while larger gifts were now permitted, the $27,000 per annum gifting restriction remained in force under the Social Security Act 1964. Hence for those couples wishing to preserve their future eligibility for a subsidy, it was business as usual. Or so many thought…

Bridgford v MSD

In 2013, the Court of Appeal in the case of Bridgford v MSD* determined that the maximum amount a couple could gift in any year was in fact $27,000 per couple, and not $54,000. This has effectively doubled the length of time it would take a couple to transfer their personal assets to a trust.

For those who had up until Bridgford been gifting an annual amount of $54,000, the “excess gifting” over and above $27,000 would be considered a “deprivation” of the couple’s assets at the time an application for a rest home subsidy was submitted – these amounts would then be added back to the couple’s personal assets, and if the asset threshold was now breached, they would be denied a subsidy.

On top of this, allowable gifting carried out within the five-year period prior to a person or their spouse going into rest home care is capped at $6,000 per annum. So if you happened to still be gifting $27,000 per year at any time within those five years (and bearing in mind that calculating when you might require care is not something you can generally predict in advance!), $48,000 in each of those 5 years (so $105,000 in total) would be added back to your personal assets.

Effect of the Bridgford decision and MSD policy

The Bridgford decision issued around the same time as MSD were increasing the rigour applied to applicants who had transferred assets to a family trust. It would be fair to say that vigilance has continued unabated since Bridgford, the effects of which now include:

Even where clients’ assets are largely comprised of their family home, the length of time now required to effectively divest themselves of assets has in many cases proved a disincentive for clients forming a family trust for this purpose.
Established trusts with a long history of gifting at $54,000 per annum (pre-Bridgford) may discover the process has been ineffective for the purposes of qualifying for a rest home subsidy, such that it may even be advisable to wind up the trust.
Where clients own few assets over and above the trust property, having a trust can even put you in a worse position than if you did not. This is most commonly seen where one client goes into rest home care and their spouse is still living in the trust property. In these circumstances, one of the asset threshold options – which allows the “family home” to be disregarded in assessing the couple’s assets – is not available, because the home is owned by a trust, and is no longer their “home”. We have seen this cause major distress to clients, particularly where they have few other savings to fund their rest home care.
There are other “tools” open to MSD in denying clients who have a family trust a rest home subsidy. So in addition to asset-testing, MSD may also determine whether the applicants have, by placing assets into a trust, denied themselves of any “income” they could have derived from those assets. This again has implications as to the extent to which clients are required to pay for their own rest home care.

MSD have a clear policy directive to ensure that where people have recourse to assets or income (whatever the source), they use those assets to pay for their own rest home care. In light of this policy – now backed by the New Zealand Courts – MSD’s approach to trusts is likely to become increasingly “combative” – and those relying on family trusts to obtain a subsidy could well end up disappointed.

Family trusts may of course still prove useful for purposes unrelated to rest home subsidies. Indeed, the abolition of gift duty has in many circumstances allowed much larger gifts to be made to family trusts than had previously been the case. In addition, depending on the level of gifting/potential deprivation, in some circumstances trusts may still prove effective in preserving a person’s eligibility to a subsidy.

The application of the Social Security Act and its Regulations is a complex matter. If you have a family member who has transferred assets to a family trust and that family member might shortly require rest home care, or are considering forming a family trust because of concerns over your future eligibility to a rest home subsidy, we would encourage you to contact our office to discuss.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. Please contact Tim Rankin timrankin@parryfield.com or Kris Morrison krismorrison@parryfield.com at Parry Field Lawyers (03 348 8480)

*Bridgford vs Chief Executive of the Ministry of Social Development [2013] NZCA 410.

You may have heard that trusts are a good protector of homes against relationship property claims. Indeed they may be – but they are not watertight protection. There are various ways that a trust can be attacked. It is therefore important to be aware of these situations so that you are less likely to fall victim to one of them.

Transfers of relationship property to a trust

If you have:

Transferred “relationship property” to a trust since the beginning of your marriage or de facto relationship; and
That transfer has defeated the claim of your partner i.e. they cannot claim an interest in it because it is now owned by a trust rather than their partner

then the Court can require you to compensate your partner or order the trust to pay income to him/her.

One of the key pitfalls to be aware of is that a family home is always classified as relationship property. So, if you decide to protect your home and transfer it to a trust after you are already living together with your partner in the property, this may be too late. The home has already become the family home and your partner may have an entitlement under this scenario.

Transferring property in order to defeat your partner’s claim

This is a broader test than the previous one. If there has been a transfer of property made (it is not restricted to trusts) in order to defeat any person’s relationship property claim, then the Court can overturn this transfer.

The property need not be relationship property at the time it is transferred to the trust. What is needed is:

That the home would have been relationship property on separation if it had not been transferred into a trust. Therefore, a transfer shortly prior to the beginning of a de facto relationship or marriage may even satisfy the test, as long as the intention requirement (below) is met; and
When you transferred your home to a trust, you must have had knowledge of the consequences of that transfer i.e. that you might be depriving your partner (or soon to be partner) of a share of an asset which they may have an entitlement to. You do not need to have a conscious desire to remove that asset from the Court or your partner.

Your trust is declared a “sham”

The Court can declare a trust to be a sham if there is evidence that the settlor (the person who effectively set up the trust) never really intended the trust to take effect.

This is a hard test to prove as most people do not set out with this intention. However, the following factors could assist with a sham trust argument:

The home has been transferred to the trust at less than full market value;
The settlor continues to treat the trust property as his own;
There are no trustee meetings;
The other trustees are rarely consulted;
No occupational rent is paid to the trust if the home is used by the settlor (though the trust might receive occupational rent by way of the settlor meeting trust debts, such as a mortgage);
The trust bank account is rarely used; or
The settlor does not ever turn his/her mind to the interests of other beneficiaries.

If the Court declares the trust to be a sham, it does not exist. The property in the trust will be treated as the settlor’s own property, which in turn can potentially be categorised as relationship property.

Illusory trust

An illusory trust is when a trust is declared to not exist because the settlor is able to control the trust entirely for his/her benefit. In particular, there is no way for the beneficiaries to hold the trustees accountable. Under the trust deed, the trustee (who in this case will also be a settlor and beneficiary) may have unrestricted powers, even though this may be contrary to the interests of other beneficiaries.

If the Court declares that the trust is illusory, it will have the same effect as a sham trust. The property will return to the ownership of the person who settled the trust.
The way to ensure that this argument is never raised is to consult with your lawyer about trustee powers at the time when the trust is being formed to ensure that they are balanced and reasonable.

Constructive trust

Finally, a Court can declare a “constructive trust” over a trust asset if:

Your partner has made a contribution (in more than a minor way) to maintaining and enhancing the property;
At the time, you both expected that your partner would share in the property and this expectation is reasonable; and
The contribution must greatly outweigh the benefits received. i.e. the contributions your partner made (money, time, labour etc) need to exceed the benefit of occupying the property.

This argument is more likely to be raised where the parties have lived in the trust property on a long term basis and the partner has made significant contributions during this period.
If a constructive trust is declared, the Court may grant the applicant an ownership interest by declaring that the trust holds the property on trust for the applicant in such shares as it determines. When assessing what share of the property your partner may be entitled to, the nature and value of the contributions will need to be considered.

What can you do to prevent the likelihood of any of these grounds of attack being successful?

The best protection that you can have against attack is to enter into a property agreement within the first 3 years of your relationship, declaring that your interest in the trust and its assets are your separate property.

Other measures include:

Consulting with your lawyer about the desired purposes of the trust, trustees, beneficiaries and terms of the trust prior to formation;
Ensuring that your home is transferred to a trust prior to commencing a relationship (if at all possible);
Understanding and carrying out your trustee duties with diligence – e.g. ensure that meetings are had and minutes taken, use the trust bank account for the payment of outgoings, have financial accounts prepared;
Consider whether you and your partner should be paying occupational rent to the trust when occupying trust property;
Do not allow your partner to make any major contributions to the property e.g. provide finance or labour for extensive renovations, unless there is legal documentation in place to record the arrangement;
Consider renting out the property to someone else rather than living in it together.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Hannah Carey at Parry Field Lawyers (348-8480) hannahcarey@parryfield.com

What would happen to your affairs if you lost the capacity to handle them yourself?

If you don’t have an enduring power of attorney (EPA), managing your property or care and welfare can be extremely difficult. Family and friends don’t have an automatic right to make decisions on your behalf. In most cases, if you want someone else to have authority to handle your affairs you need to arrange that ahead of time.

In New Zealand, if you become incapacitated without an EPA in place, your family and/or friends must apply to the Family Court before they can do anything to help with your property or welfare and care. This takes time and is considerably more expensive than making an EPA. It may also provoke family tensions as family members may not always agree on who should be appointed. The Court may also appoint someone who you don’t wish to make decisions on your behalf.

Everyone, regardless of age, should make an EPA. Tomorrow may be too late. A car accident or stroke could leave you incapable of making key decisions for yourself either temporarily or for the rest of your life.

What is an Enduring Power of Attorney?

An EPA is a document where you appoint another person (called your attorney) to make decisions on your behalf if you are unable or (in some circumstances) do not wish to.

There are two types of EPA – one specific to your financial and property matters and the other specific to your personal care and welfare.

How to make an Enduring Power of Attorney

The format of the EPA document is prescribed by statute. The person making the EPA (‘the donor’) must have their signature witnessed by a lawyer, officer of a trustee corporation or a legal executive, all of whom must be “independent” of the attorney. The witness must certify that he or she has fully explained the rights and obligations under the EPA to the donor and that that person was of sound mind and able to understand its effect.

If we act for both you and your attorney, you may need to see a solicitor outside our firm to have the EPA signed (we can still prepare the documents and assist with arranging the independent lawyer appointment if you wish). As noted above, we consider it extremely important that everyone has an EPA. The cost of making an EPA will always be less than the cost involved if you don’t have one and need someone to manage your affairs.

Care and Welfare Enduring Power of Attorney

A personal care and welfare attorney can only act on any “significant matters” relating to the donor’s personal care and welfare where a medical practitioner has certified that the donor is mentally incapable. A “significant matter” is one that is likely to have an important effect on the health, wellbeing or enjoyment of life of the donor – for example, a major medical procedure or change of the donor’s residence. Unless the medical certificate specifies that the donor’s mental incapacity is likely to be ongoing, a new certificate will be required each time the attorney acts under the EPA.

The attorney must consider the financial implications of his or her decisions and must take into account any advance directives given by the donor, especially concerning medical treatment.

You can only appoint one person to act as your attorney at any time but you can appoint a substitute attorney to step in if the first person becomes unable or unwilling to act for you. You can also include a requirement that your attorney consult other people such as family members or give them information about the decisions the attorney is making for you.

Property Enduring Power of Attorney

A property attorney looks after your financial, investment and real estate matters. There are more options for how your property attorney can act compared to the care and welfare attorney. These include:

You can have more than one person acting either together or on their own;
You can appoint substitute attorney(s) to step in if the first person becomes unable or unwilling to act for you;
You can have the attorney able to act on your specific instructions while you have mental capacity and continue if you lose capacity. This can be helpful if you become physically incapacitated. Or you can restrict the authority to only begin if you have been medically assessed as not having mental capacity to make your own decisions.
You can require your attorney to consult with or give information to other people;
You can empower your attorney to make gifts and donations on your behalf if you wish;
You can allow your attorney to act to their own benefit for example if they own property with you jointly or for out of pocket expenses. All other actions must be solely in your best interests;
You can provide the right for your attorney to apply to the Family Court if for some reason your will is out of date and needs to be changed;
You can restrict what property your attorney has power over.

Ending an Enduring Power of Attorney

All EPAs come to an end on the donor’s death. If you have mental capacity you can also revoke an appointment if you change your mind about who you want to act for you. Notice of the cancellation needs to be given to the attorney and we can assist with that. The court can also cancel an EPA if it believes the attorney is not acting appropriately.

If you have been appointed as an attorney you can disclaim that appointment if you want to stop acting. Again we can assist with the appropriate notice.

Please contact us

EPA’s are essential documents for people of all ages and it is much easier to put these in place before they are needed. If you wait until you think you are losing capacity it may be too late and you may not have advance warning of an accident or medical event. We can also assist if you are acting as an attorney and have questions about the role or actions you plan to take.

You should talk to your lawyer at Parry Field about making an Enduring Power of Attorney. To discuss making an EPA or acting as an Attorney please contact Luke Hayward or Jo Mechaelis-Wall (03 348-8480).

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

According to Greek mythology, to be properly buried, a coin called an obol needed to be placed under your tongue. This would then be presented to Charon (the ferryman of the River Styx), as payment for the crossing of the river. The entrance to Hades, the underworld, was on the other side of the river. If you were not buried with a coin in your mouth you were destined to wander the banks of the Styx until you found the paupers’ entrance to Hades.

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