WHY YOU NEED A TRUST

1. WHY YOU NEED A TRUST

2. Asset Protection Estate & Succession Planning Tax Management Social Benefits Confidentiality

3. Asset Protection • Business Creditors • Liability Claims • Relationship Property Claims

4. Business Creditors • Business Failure • Company – Limited liability • Directors – Personal Guarantees - Trading while Insolvent • Insolvency Act 2006 • Property Law Act 2007

5. Liability Claims • Clients • Employees • Public • Liability Insurance

6. Relationship Property Claims • Property (Relationships) Act 1976 • Wide Reaching • Pre Marital Property • Children’s Inheritances • Section 44C

7. Estate and Succession Planning • Wealth Protection • Certainty • Flexibility • Business Continuity • Tax Liabilities

8. Tax Management • Taxation of Trusts • Income Splitting • Tax Avoidance • Beneficiary Allocations

9. Taxation of Trusts • Beneficiary Income • Trustee Income • Losses

10. Income Splitting • Sliding Tax Scale • Aligning Top Personal Tax Rate with Trust Rate • Minor Beneficiary Rule • Structures

11. Tax Avoidance • Penny & Hooper • IRD Revenue Alert • IRD Compliance Focus • Appropriate Remuneration for Personal Skill and Effort • Commercial Reasons

12. Beneficiary Allocations • Vests Absolutely

13. Social Benefits • Working for Families Tax Credits • Student Allowances • Residential Care Subsidies

14. Working for Families • Family Scheme Income • New Rules

15. Student Allowances • Parental Income Test • New Rules

16. Residential Care Subsidy • Excess Gifting • Abolition of Gift Duty

17. Confidentiality • No Public Register • Assets held in Trustees names

18. Summary • Imperative for asset protection • The sooner the better • Useful tools for future planning • Still some tax benefits • Limited use for social benefits

19. HOW TO SET UP A TRUST & HOW A TRUST OPERATES

20. Certainty of Intention Certainty of Subject Matter Certainty of Objects

21. Settlor (Single or Joint) SETTLORS - MEMORANDUM OF WISHES Beneficiaries Trustee(s)

22. TRANSFER OF ASSETS TO THE TRUST Settlement • Essentially a gift Transfer at Fair Market Value • Acknowledgement of Debt & Gifting

23. 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…

24. 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)

25. 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

26. THE RULES • Appointment/Removal of Trustees • What if the settlor(s) die? • What rights should the final beneficiaries have?

27. 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

28. 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

29. 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

30. 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)

31. Trustees and Beneficiaries

32. NATURE OF A TRUST • What it means to be a Trustee • The status of a beneficiary in a Trust

33. 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.

34. 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

35. 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

36. 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.

37. 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

38. 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

39. 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.

40. What it means to be a beneficiary

41. The Rights of a Beneficiary • A controversial matter • Fixed interest / Discretionary interest

42. 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

43. 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.

44. GIFTING

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

46. SITUATION NOW • Repealed from 1 October 2011 • Documentation still required • Solvency Statement

47. REASONS • Matrimonial • Creditor Protection • Rest Home subsidy eligibility

48. MATRIMONIAL • Covered in later presentation • Power of Section 44 • Courts view

49. CREDITOR PROTECTION • Unscrupulous disposition of property • Remedies for Creditors • Legitimate dispositions Trust Donor Property Debt

50. REST HOME SUBSIDYS • Gifts within 5 years $6,000 per application • Gifts beyond 5 years $27,000 per application