WHY YOU NEED A TRUST
o Asset Protection
o Estate & Succession Planning
o Tax Management
o Social Benefits
o Confidentiality
Asset Protection
o Business Creditors
o Liability Claims
o Relationship Property Claims
Business Creditors
o Business Failure
o Company – Limited liability
o Directors – Personal Guarantees
- Trading while Insolvent
o Insolvency Act 2006
o Property Law Act 2007
Liability Claims
o Clients
o Employees
o Public
o Liability Insurance
Relationship Property Claims
o Property (Relationships) Act 1976
o Wide Reaching
o Pre Marital Property
o Children’s Inheritances
o Section 44C
Estate and Succession Planning
o Wealth Protection
o Certainty
o Flexibility
o Business Continuity
o Tax Liabilities
Tax Management
o Taxation of Trusts
o Income Splitting
o Tax Avoidance
o Beneficiary Allocations
Taxation of Trusts
o Beneficiary Income
o Trustee Income
o Losses
Income Splitting
o Sliding Tax Scale
o Aligning Top Personal Tax Rate with Trust
Rate
o Minor Beneficiary Rule
o Structures
Tax Avoidance
o Penny & Hooper
o IRD Revenue Alert
o IRD Compliance Focus
o Appropriate Remuneration for Personal
Skill and Effort
o Commercial Reasons
Beneficiary Allocations
o Vests Absolutely
Social Benefits
o Working for Families Tax Credits
o Student Allowances
o Residential Care Subsidies
Working for Families
o Family Scheme Income
o New Rules
Student Allowances
o Parental Income Test
o New Rules
Residential Care Subsidy
o Excess Gifting
o Abolition of Gift Duty
Confidentiality
o No Public Register
o Assets held in Trustees names
Summary
o Imperative for asset protection
o The sooner the better
o Useful tools for future planning
o Still some tax benefits
o Limited use for social benefits
HOW TO SET UP A TRUST
&
HOW A TRUST OPERATES
Certainty of Intention
Certainty of Subject
Matter
Certainty of Objects
SETTLORS - MEMORANDUM OF WISHES
Settlor
(Single or Joint)
Trustee(s)
Beneficiaries
TRANSFER OF ASSETS TO
THE TRUST
Settlement
• Essentially a gift
Transfer at Fair Market Value
• Acknowledgement of Debt & Gifting
THE RULES
o Trust Period / Perpetuity Period
 80 years / beneficiaries Coming of age 18-25
o 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 RULES
o 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 RULES
o Management & Administration Powers
 Trustee Act 1956
 Unanimous Decisions v Decisions by Majority
o Resettlement and Amendment of Trust Deed
 Allowing for changes in personal circumstances or
changes in law
THE RULES
o Appointment/Removal of Trustees
 What if the settlor(s) die?
 What rights should the final beneficiaries have?
THE RULES
o Power to Appoint or Add/Remove Beneficiaries
 Ability to appoint a beneficiary as a final (capital) beneficiary
o General Clauses
 Conflict of Interest – Independent Trustee
 Indemnity – Trustee liability & Trust Assets
 Remuneration – Compensation for Professional Services
TRUST OPERATION
o IT’S IN THE HANDS OF THE TRUSTEES
Advisors advise - TRUSTEES decide
o Minimum Requirements for Active Management
 Annual Trustee Meetings
 Keeping of Trust Accounts
 A Trust Management Plan
TRUST OPERATION
o 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 OPERATION
o 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)
Trustees
and
Beneficiaries
NATURE OF A TRUST
What it means to be a Trustee
The status of a beneficiary in a Trust
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.
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
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
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.
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
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
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.
What it means to be a
beneficiary
The Rights of a Beneficiary
A controversial matter
Fixed interest / Discretionary interest
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
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.
GIFTING
BACKGROUND
Applied since 1885
Protection of Estate Duty base
Expensive to Administer
Minimal Revenue
Antiquated System
SITUATION NOW
Repealed from 1 October 2011
Documentation still required
Solvency Statement
REASONS
Matrimonial
Creditor Protection
Rest Home subsidy eligibility
MATRIMONIAL
Covered in later presentation
Power of Section 44
Courts view
CREDITOR PROTECTION
Unscrupulous disposition of property
Remedies for Creditors
Legitimate dispositions
Donor
Trust
Property
Debt
REST HOME SUBSIDYS
Gifts within 5 years
$6,000 per application
Gifts beyond 5 years
$27,000 per application
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
Take a moment to
stretch your legs