Family trusts: have you reviewed yours?

NZFP • Oct 08, 2019

The new trust law could change the way your family trust is managed – how is it relevant to you?

The Trusts Act 2019 is one of the most all-encompassing reforms to trust law and could impact the way your trust is managed.

There are a number of changes in the new law, but one that seems to have come as a surprise to most clients we have spoken to is the need for greater transparency and disclosure to trust beneficiaries.

The “traditional mindset” of family trust management

Many family trust trustees have traditionally managed the trust affairs as if they still owned the assets outright and in their own name and had absolute personal control, which is technically not correct.

As such, more often than not, they haven’t been providing the other beneficiaries (typically their children) with information on the trust’s ongoing administration and financial details.

The new Act makes it clear that the “traditional mindset” must change

With this new trust law, beneficiaries may need to be made aware of their position and rights to information.

On the positive side:

Capable and knowledgeable beneficiaries will have the potential to hold trustees to a higher level of accountability in the discharge of their duties.

However

Many ‘Mum and Dad-type’ family trust clients are not happy about the prospect of having to provide their children with an insight as to “what’s sitting in the trust”.

This wariness from many family trust clients comes from a desire to encourage prudent savings and spending habits, rather than allowing their children to simply rely on what they may get from the trust.

Some feel so strongly about sharing “otherwise private information” with their children that they are seriously contemplating the wind up of their trusts.

But it is important to not make a rash knee-jerk reaction to these changes

It is always prudent to seek professional advice about your trust. Be sure to talk with your financial planner to review your objectives and goals to ensure that the trust is still relevant and is being properly managed.

When did you last review your family trust, and is it still set to provide the benefits that you initially envisioned?

Over the years, people have established family trusts for a multitude of reasons: to secure assets for future generations, to protect assets from claims and creditors, rest home subsidies or for tax minimisation. As circumstances change, so may the motivation behind these reasons.

Reviewing your trust in the context of your overall financial plan will give you a clearer picture of the outcomes you wish to achieve from a trust – from both a financial and a lifestyle protection perspective.

Family trusts are just one of a whole toolkit of estate planning choices to consider

Estate planning and personal financial planning are inextricably linked.

That’s why it’s important to regularly review them with your financial planner, not only in light of regulatory changes, but in the context of your overall financial plan in alignment with your financial wellbeing, your lifestyle, and your values.

Review your options with expert guidance. Get in touch with NZFP to discuss your trust in the context of your financial plan

Once you have discussed with your adviser, we also recommend consulting with your lawyer or

a trust expert

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