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

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.

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Hokitika 7810, New Zealand

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Hokitika 7842, New Zealand

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