Snoopers Charter for Trusts on the way
Snoopers will soon be over the moon with an overhaul of trust regulation likely to create a compliance regime similar to that for governing companies.
In a few weeks a paper to be issued by the Law Commission could review options to significantly tighten compliance procedures for trusts including: creating a register of trusts, appointing a trusts ombudsman paid for by an annual levy on trusts, detailing in a dedicated statute the duties of trustees and making it easier for beneficiaries to remove non-performing trustees.
In line with the Companies Act which sets out company directors’ duties, the trust statute could include both civil and criminal penalties for trustees (often mum and dad) who fail in their duties and could give more power to trust beneficiaries. There may be as many as 500,000 trusts in New Zealand resulting in a growing worry that a large number may be mismanaged or, in some cases, not managed at all.
The Supposed Concerns
Poor trust administration may lead to serious problems for both trustees and beneficiaries evidenced by the following examples:
Annual gifting of Settlors’ loans not completed. If loans resulting from assets transferred to the trust are not forgiven, trust assets will not be fully protected, defeating the primary purpose of the trust.
- Trust minutes not completed. Trustees should authorise by a signed minute adoption of the annual financial statements and tax returns, distributions to beneficiaries, borrowing of funds, the purchase and sale of assets, investment strategy and other important transactions. Failure to do so may lead to disputes between trustees and beneficiaries, causing expensive legal litigation.
Lease documentation not on file and current. Trustees may own property that is leased to a trading company. If up to date lease documentation is not on file the leasing arrangement could be challenged by Inland Revenue or a disgruntled beneficiary.
Registers regarding Trustees, Beneficiaries, significant events and gifting programmes not properly maintained. If these registers are not accurately maintained, problems may arise in establishing the true position of the trust, especially when attempting to wind it up and distribute assets to beneficiaries.
- No Settlors’ Memorandum of Wishes. This document provides trustees with a blueprint for governance of the trust to fulfill the intent of the settlors who established the trust. Without this memorandum in place, trustees may misinterpret the trust’s purpose.
What’s Wrong with the Likely Proposals?
Firstly, one of the huge benefits of a trust is anonymity. If you want to, you can own assets in a trust with just independent trustees so that no one can find out what you own. Will the proposed Trust Register include a requirement to disclose beneficiaries? If so why? Why should anyone be able to find out about your affairs or assets?
Secondly, trusts are different to companies (trading trusts aside) as trusts are not trading and racking up unsecured debts to creditors. It’s only fair that in return for limited liability potential suppliers and customers should be free to determine the identity of directors and shareholders but what has that got to do with trusts?
Thirdly, we should be free to do as we please with our own assets and affairs. If we wish to make a mess of our own financial affairs surely that’s up to us? What sort of Nanny State do we live in exactly?
Now don’t tell me we need Trust regulation to root out the dishonest or the inept like many of the directors of the failed Finance companies – it would be very easy to change the law to allow the seizure of the assets from their trusts in those circumstances. By their actions they have forfeit any rights of anonymity or asset protection.
And why trusts? Why not partnerships or badly run businesses?
Practical Advice on Trusts
If you want some practical advice on trusts see the trust service section of our website or as well as this article. If you need specific advice, call 0800 ASK NICK from any New Zealand phone. Your loved ones are too important not to take of properly when you’re incapacitated or 6 ft under or when you or your kids have ended up with the wrong partner!