TRUSTS & ASSET PLANNING

What is a trust, and what does it mean when it is described as a discretionary trust?

A trust is not a separate legal entity or person, like a company or an individual. A trust is a fiduciary relationship in which the settlor(s) gives the trustee(s) the right to hold title to property or assets for the beneficiary(ries). A trust has a deed which sets out how the trustees are to operate and how trust assets are to be administered.

A discretionary trust is whereby the trustee(s) can exercise their discretion as to which beneficiaries receive a distribution/benefit from the trust and what those distributions/benefits are. Beneficiaries can receive distributions of income or capital from the trust. Most family trusts are discretionary trusts.

Do I need a family trust?

Forming a trust is a way of protecting assets and accumulating wealth for future generations. A trust is set up for many reasons, with the most common being:

  • estate planning to provide for, and benefit, future generations;
  • to manage the assets of a family member who is unable to manage their own financial affairs;
  • protection against relationship property and third-party claims; and
  • retirement planning.

Trusts need to be properly administered and must comply with legal requirements. We can advise you if setting up a trust may be the right option for you.

We no longer use our family trust; can we get rid of it?

Most trust deeds have a dissolution or winding up clause, which will specify whether the trust can be wound up early and in what circumstances. Reasons for winding up a family trust early include:

  • the reason for setting up the trust in the first place no longer exists (e.g. the trust was established to fund the education of certain offspring, and they have now ended their education);
  • the trust was set up for the benefit of parents and children, but the parents are now deceased - so the children might decide to wind up the trust and distribute the assets among themselves;
  • the trust was set up by a couple, and that couple has decided to separate;
  • the trustee(s) think there is no longer any benefit to having a family trust.

There can be crucial implications of winding up the trust which need to be considered before a decision is made to wind up a trust; for example, the distribution of the assets may impact your chances of qualifying for a residential care subsidy. We can explain and discuss these implications with you, and weigh up the pros and cons of winding up your family trust.

Why is it important that your family trust is administered?

Once a trust has been established, it must be administered properly. A family trust achieves its objectives by separating ownership of the family's assets from your personal assets. If the trust is not administered properly to recognise this separation, the trust could be challenged as a sham trust by a creditor, relationship partner, the IRD or Work and Income New Zealand. If such a challenge succeeds, the benefits available through the trust structure will be lost.

What is an independent trustee, and should our family trust have one?

While the law requires all trustees to act independently and impartially, the term ‘independent trustee’ is used to describe a trustee who is not a beneficiary of the trust and cannot benefit from the assets of the trust.

An independent trustee is highly recommended as they can play an important role in ensuring that all beneficiaries of the trust are treated impartially and fairly. This is particularly important in family situations where competing interests and family tensions can place trustees under strain.

An independent trustee should have professional expertise and skills that will assist the other trustees with decision making and administering the trust. While there will be fees associated with having a professional trustee, the right independent trustee can be seen as an ‘insurance policy’ against attacks against the trust by disgruntled family members or outside parties (such as creditors) and help with managing the trust assets and ensuring the trust is properly administered. We can help set up an independent trustee company for your trust.

RELATIONSHIP PROPERTY

What is a Relationship Property Agreement?

A Relationship Property Agreement is an agreement between married couples, de facto couples or civil union couples (including same sex couples) to alter the rules in the Property (Relationships) Act for the division of relationship property that would otherwise apply without such an agreement.

An agreement (usually called a contracting out agreement or “pre-nup”) may be entered into before the relationship commences or at any time during the relationship and it can continue to have effect after the death of a partner. It is becoming more common for people in new relationships to have an agreement to ensure that property they have acquired prior to the relationship (in particular, houses and businesses) remain their separate property for the duration of the relationship or some other agreed upon period.

A separation agreement in a lot of ways is similar to a contracting out agreement (or “pre-nup”) but is entered ­into at the end of the relationship. Its key purpose is to provide certainty around the division of property so that the parties can move forward without concern that a claim may be made against their assets down the track.

If an asset is only in my name (for example KiwiSaver), can it still be ‘Relationship Property’ and subject to a 50/50 sharing?

Yes. Relationship property covers things of financial value that you gained during the relationship even if it is only in your name. It can include:

  • the family home and contents, other land or buildings and vehicles;
  • salary/wages, KiwiSaver earned during the relationship, insurance pay-outs, superannuation you received, rents and other income from joint property;
  • any property gained when you were in the relationship or had the relationship in mind and intended for both of you to use;
  • non-personal debts (your personal debts are your own responsibility);
  • gifts or inheritances that have become mixed with relationship property; and
  • increases in the value of relationship property, income from it or the proceeds from the sale of it.,

Can my partner and I stipulate what each of us own and what we own together if we separate or die?

Yes, a couple can choose to share their property differently than how the Property (Relationships) Act sets out. However, for this to be legally binding they need to enter into a contracting out agreement (sometimes known as a “prenuptial” agreement – or “pre-nup”) which details how their property is owned between them. Such an agreement must be in writing and must meet various legal requirements, including that the parties each get independent legal advice.

I am in a long-term second relationship but wish to leave all my estate to my children from my first marriage. Can I prepare my will accordingly?

Yes, but it is not as simple as that.

The Property (Relationships) Act covers division of property when a relationship ends due to the death of a spouse or partner. The surviving spouse or partner must choose whether to apply for relationship property to be divided under the Act (which means they are legally entitled to 50% of the couple's combined assets) or whether to take what is left to them under the deceased’s will. If a surviving spouse or partner makes a claim under the Act, this takes precedence over any other person’s claim under inheritance law (such as your children). This recognises that one spouse or partner should not be able to give away the other spouse’s or partner’s share of relationship property in their will. Therefore, what you think you might be giving your children under your will, may in fact be relationship property which your spouse or partner is entitled to, ahead of your children.

You will also need to enter into a contracting out agreement with your partner to ensure your wishes under your will are enforceable and that your property ownership is structured correctly.

I am separating from my spouse. We have agreed how we will divide how assets. Do we need to see a lawyer about this?

You don’t have to do anything official when you separate from your partner. However, a separation agreement is highly recommended as it keep things clear, especially if you have joint finances and property together, and allows you both to move on with peace of mind. For example, you may think you have finalised your property division based on a verbal agreement, only to be caught unaware by a claim by your ex-partner 18 months later. If you wish for the arrangement to be legally enforceable it must be in writing, and you will both have to obtain independent legal advice.

CONVEYANCING

What is conveyancing?

Conveyancing is a term used to describe the legal work required for completion of a property transaction — usually a sale or a purchase.

Should I use a lawyer when I am buying and selling property?

Yes. Besides being able to assist and advice during the preparation and signing of the sale and purchase agreement, the deposit and settlement monies should always be paid to a trust account.

When purchasing a property you should never pay the deposit directly to the Vendor, as it may be hard to recover if the agreement is cancelled for any reason, or the Vendor may spend it and not have sufficient funds to repay their mortgage on settlement day. A deposit should always be paid into a trust account. Your lawyer can also provide necessary undertakings to enable a smooth settlement, and not only protect your interests, they also ensure that the bank's interests are protected by either registering the mortgage against the title or releasing it and repaying the amount you owe back to the bank.

Another advantage of engaging a lawyer is that they are qualified to advise in all aspects of the law which may need to be dealt with as part of the overall property transaction — for example making or updating your will, setting up a trust and any relationship property matters which may apply. We take a holistic approach and ensure that all your affairs are in order.

Can I use my KiwiSaver to purchase a house?

You may be eligible to withdraw all or some of your KiwiSaver contributions toward purchasing your first home if you have been a member of KiwiSaver for three years or more. This withdrawal can be a very significant contribution toward the deposit under the contract, and toward the total purchase price for the property.

Your eligibility is determined by various criteria. You must intend to live in the property (it cannot be an investment). If you have owned property before, you will also need to obtain confirmation from Housing New Zealand that you qualify for second-chance eligibility. Talk to us about the process and other things to keep in mind.

What are the different types of property ownership?

When buying a property, it is important to consider what the best form of ownership is for your situation. This will differ depending on if you are buying a rental investment property or a home to live in as well as your personal circumstances, so it is essential to get professional advice on your structuring options.

There are numerous options available, the most common of which are:

  • Sole ownership: where one person solely owns the property. If you are purchasing the property in the names of two or more people you can choose to be Joint Tenants or Tenants in Common.
  • Joint Tenants: the names of all owners are listed together on the title. If one owner passes away their share will automatically pass to the other owners, it will not pass to the estate of the deceased owner.
  • Tenants in Common: ownership of the property is divided into shares. These can be 50/50 or a different percentage based on the amount each party contributes to the purchase. Should one of the owners pass away their share in the property will go to their estate. This method of ownership is suited to business partners co-purchasing a property or couples with children from former relationships that wish to leave a share in the property to their children.
  • Family Trusts – held by the trustees of the trust for the benefit of the beneficiaries.
  • All too often, people do not understand the differences and ramifications of the various forms of ownership. It is important to get this right. We can discuss this with you.

What is the bright-line test?

Investors in residential property need to be aware of the “bright-line test for residential land” which has been in effect since 1 October 2015. Since that date, gains on the proceeds of sale of residential property acquired and disposed of within a two-year period are liable for income tax, subject to certain exclusions. Recent changes to the bright-line test have extended the period to five years. Residential land purchased after 29 March 2018 and disposed of within five years can create a liability to income tax, with certain exceptions.

One of the purposes of the bright-line test is to “target people who seek to make a profit from property speculation”, and as such in most situations it excludes property used as your main home, inherited property and property sold subject to a relationship property agreement. However, the “main home” exclusion does not apply when you have used the exclusion two or more times within the two years immediately prior to the bright-line date or if you have a regular pattern of buying and selling residential land. Please discuss your plans with us before beginning the process of buying and selling property.

HOME LOANS & REVERSE MORTGAGES

When and how should I start discussions with banks regarding obtaining a home loan?

Having a pre-approval in place before you start house hunting has several benefits. As well as showing sellers and agents you’re serious about buying, it helps speed up the process when you find a home you like, which puts you in a far better negotiating position.

When applying for pre-approval or a home loan it pays to shop around. Your mortgage adviser can do the hard slog for you by shopping around on your behalf and advising you on the right deal to fit your situation. We can recommend, or introduce you to, an appropriate mortgage broker.

What happens to our home loan if we transfer our home to a family trust?

If there is a mortgage involved, the bank's consent will need to be obtained. The loan may not necessarily be redocumented in the trustee(s) name(s), as it may be better that the loan remains in the name of borrowers (i.e., existing owners) and the trustees simply guarantee the loan.

We can explain and discuss with you the different ways to structure the loan and the bank documents, so you can weigh up the pros and cons and determine which structure is best for you.

What is a reverse mortgage?

A reverse mortgage is a loan that has been designed for the needs of seniors. It allows people aged 60 and over to release cash from the value of their home to help fund their retirement. No regular repayments are required – the debt is repaid from the future sale of the property.

How is a reverse mortgage loan repaid?

The total loan amount, plus accumulating interest and fees charged, is repayable when you move permanently from your home - usually when you sell your property, move into long-term care, or pass away. The loan is usually repaid from the sale proceeds of your home, and the balance is then retained by you or your estate.

I don’t own my home. Can the property still be used for the purpose of a reverse mortgage?

Some applicants (called Nominated Residents) may not be the sole owners of the home they live in. For example, the home might be in a family trust, or in the case of a couple, owned by only one person. As long as the Nominated Residents of the home meet the age criteria, and all residents are recorded on the loan, you can usually still apply for a Reverse Mortgage providing all the owners agree to sign the application form and legal documents. Terms and conditions will apply.

WILLS & ESTATES

Who needs a will?

Every adult who has a child or owns a property should have a will. Without a will the law determines how your assets are divided and what happens to the people who depend on you.

Not having a will when you die places a great deal of additional stress on your family. At a time when they are trying to deal with a loss it can be very emotional and difficult to make decisions. Having written wishes makes it so much easier for them and gives them the comfort and satisfaction of knowing that they are doing what you wished.

Can I write my own will or buy a DIY will online?

You can – but beware. “Do it yourself” kits for wills can lead to poorly drafted wills and administrative difficulties for your executor/trustee(s). Common problems with homemade/online DIY wills include; failure to consider how assets are legally owned, failure to take a holistic approach to your affairs and failure to consider laws which allow courts to alter terms of your will, such as the Family Protection Act and Property (Relationship) Act. While technology is fantastic for allowing lawyers to make their services more affordable and accessible, arguably it is dangerous if it is used without, or to replace, professional legal advice. You may be cutting costs by making a DIY will but if it is poorly drafted and has ambiguity, the time and associated costs in sorting those issues could be very significant and expensive.

When should I update my will?

It's important to review your will regularly, say every 5 years, especially after any significant events or changes in your life. Your will is automatically revoked if you marry or re-marry so you must update your will then. Other changes in your life such as welcoming a new baby, ending or starting a relationship, buying or selling a home or business, establishing a family trust or a name change may also require revision of your will.

I have been asked to be an executor of a friend’s will, what does this mean?

When someone makes a will, they need to appoint an executor(s). An executor(s) is the person/people who, on the death of the will maker, act as the will makers representative and ensures the wishes set out in their will are followed.

Some tasks of an executor include assisting with funeral arrangements, notifying beneficiaries in the will, confirming and distributing assets, paying debts and closing accounts. The first step for an executor is usually to see a lawyer to help with the process of obtaining probate, the term used for obtaining the legal authority to deal with the estate of the deceased.

Usually a family member, close friend or a professional is chosen for this important role. Being chosen as an executor of someone’s will is an honour. But it’s also a significant responsibility. We can work with you and help you in this role.

I am the executor of my father’s will, do I have to use the law firm that holds his will to administer his estate?

No. The executor(s) (the person(s) appointed in the will to administer the estate) are free to choose which lawyer or law firm they would like to use to assist them with the administration of the deceased’s estate and, primarily, to obtain probate (the term used for obtaining the legal authority to deal with the estate of the deceased). The process of uplifting a will and using a different lawyer to assist with the administration of an estate is an easy process. We would be happy to help.

ENDURING POWERS OF ATTORNEY

What are Enduring Powers of Attorney?

An Enduring Power of Attorney (EPA) is a legal document that lets you appoint a person to take care of your affairs. They differ from an ordinary power of attorney in that the power ‘endures’ (continues) even if the person who has given the power loses mental capacity. Whereas, an ordinary power of attorney automatically terminates if the donor (person who has given the authority) is declared to be ‘mentally incapable’.

There are two types of EPAs; one in respect of Property (assets), and one in respect of Personal Care and Welfare (living and care arrangements).

Why do I need Enduring Powers of Attorney?

If you become incapacitated and you do not have enduring powers of attorney (EPAs), the only way decisions can be made about your property or personal welfare is by applying to the Family Court under the Protection of Personal and Property Rights Act. This is costly and time consuming, and there is no guarantee that the Court decision will be what you would have wanted.

Can’t someone’s spouse/partner or children just act for them, rather than setting up Enduring Powers of Attorney?

No. They need the legal backing of enduring powers of attorney (EPAs). They can, of course, name their husband/wife, partner or children as their attorney, but this must be done through an EPA. If something happens to a person and they do not have an EPA, their family – including their spouse/partner or children – would have to go to court to obtain the authority to act on their behalf.

I have a Will, do I also need Enduring Powers of Attorney?

Yes, as they apply to very different situations. A will only takes effect when a person dies. Enduring powers of attorney (EPAs) are effective while you are still alive but may have become mentally incapable. On your death, your EPAs automatically terminate, and anyone you have appointed no longer has authority to act. At such time your will comes into effect and the person (or people) appointed as your executor(s) under your will obtain authority to act on your behalf. Accordingly, your attorney(s) under your EPA and your executor(s) under your will (if they are different people), never have authority at the same time.

Who should have Enduring Powers of Attorney?

Every adult should have enduring powers of attorney (EPAs). Anyone, at any time, can lose the ability to make decisions, so it’s important for everyone to think about getting EPAs. A good time for people to get one is when they are making or updating their will.

RETIREMENT VILLAGES

Is purchasing a unit in a Retirement Village just like any other property purchase?

No. About three-quarters of New Zealand's retirement villages offer 'licences to occupy', also known as a 'right to occupy' or 'occupation licence'. This type of arrangement is very different from your usual home ownership.

An occupation licence is a personal right only. You do not own the property, but you have a contractual right to occupy that dwelling. Unlike normal property ownership, you are not able to mortgage the property, and you cannot rent the property.

What is an Occupation Right Agreement?

An Occupation Right Agreement (ORA) is the name of the legal contact between the retirement village and a resident. The ORA sets out payment information, the village disputes process and termination rights. It is important that you work through your ORA with your lawyer and ensure you understand each part of the agreement prior to signing.

Should we seek legal advice before purchasing in a Retirement Village?

Yes. The Retirement Villages Act of 2003, and its regulations are designed to protect residents’ interests and set out basic standards for operating a village. These include disclosure of information to intending and existing residents, protections around residents’ financial interests, the details of termination arrangements, the relationship between the owner (the village), resident, and manager including the methods of dispute resolution, and resident’s rights.

It is a requirement of the Retirement Villages Act 2003 that each new resident receives legal advice to ensure they understand the Occupation Right Agreement (plus accompanying documentation) prior to signing. The lawyer is required to witness the resident’s signature after clearly explaining all content of the agreement.

What are the costs of living in a Retirement Village?

All villages are different, however most have a common set of costs. The amounts for each of these costs varies between villages, and sometimes by individual units within a village.

Firstly, there is a purchase price or entry fee, which gives the resident the right to live in the property for their lifetime or as long as they choose. When the resident leaves the village, they will receive the cost paid (entry fee) minus the deferred management fee and any other outstanding costs due at that time. The deferred management fee (also known as an amenities fee) is usually around 30% of the purchase price (it varies from village to village and may be more or less) and it represents a contribution towards the provision of accommodation and communal village facilities and buildings. Residents also usually pay a village weekly fee, usually monthly in advance, which is calculated as a proportion of the cost of the village outgoings. This fee usually includes costs such as rates, insurance, rubbish collection, security patrols, lawn & garden maintenance, but will vary by facility. It is also important to note that the village retains any capital gains in the property.

What should I consider when comparing Retirement Villages?

There are many differences between villages, and each villages occupation right agreement needs to be understood to ensure you know what these are. For instance:

  • Weekly fees – some villages' weekly fee is fixed, others may increase fees based on the percentage increase of New Zealand’s superannuation each year, whereas others only increase fees if the village's operating costs go up e.g. if rates or insurance costs of the village are increased.
  • Capital gains/losses - it is recommended that you speak with the village manager or sales consultant to make sure you have a clear understanding of the contractual details surrounding capital gains and losses. This information can also be found in the village's most recent ‘disclosure statement’ which is listed on the New Zealand Companies Office website. We can also advise you on this.
  • Deferred Management Fee – this is a percentage of the price that you paid to enter the village and is usually capped between 25 – 35% but varies between villages.
  • Fees on exit - whether residents will be required to continue to pay the weekly fee once they leave the village, and for how long, differs depending on the village. It is important that you ask the village manger or sales representative this question so there aren’t any unplanned financial costs once you leave. Refurbishment requirements, and who bears the costs of these should also be raised.
  • On-going care – possible future residential care needs (rest home care, long term care hospital, dementia care, and psycho-geriatric care) should also be considered. Some villages provide all the levels of care and some do not.
  • Visitors – what are the rules around friends and family being able to stay and use the village facilities? Each village may have a slightly different policy around this so make sure you check with the village manager.
  • Pets - most villages will allow small well-behaved pets in the village as long as it is agreed to by the village manager first. However, this is not the case for all villages, and some will have a 'no pets' policy so it is important you ask this question.

RESIDENTIAL CARE SUBSIDIES

What is residential care?

Residential care includes the following types of long-term care provided in a rest home or hospital: rest home care, continuing care (hospital), dementia care and specialised hospital care (psychogeriatric care). Long-term residential care does not include independent living in a retirement village.

Who is responsible for funding residential care?

District health boards (DHBs) are responsible for funding residential care services for older people under the Social Security Act 1964. DHBs have a contract with rest home or hospital owners to provide long-term residential care to residents who are eligible for government funding through the residential-care subsidy.

Do only certain care facilities qualify for funding?

Only rest homes or hospitals that have achieved Certification under the Health and Disability Services (Safety) Act 2001 and comply with the Health and Disability Sector Standards 2001 can have a contract with DHBs. The Residential Care Subsidy is paid directly to your rest home or hospital.

How does someone qualify for a residential care subsidy?

To be eligible for government-subsidised residential care you must be aged 65 or over; or aged between 50 and 64, unmarried and with no dependent children. You must then be formally assessed as ‘needing care’. The assessment, called a ‘needs assessment’, must be carried out by a Needs Assessment and Services Coordination agency (NASC). Your GP can help arrange for an assessment to be carried out. The bar for entry to residential care is higher than many people expect. You are likely to be eligible for residential care if you have ‘high’ or ‘very high’ needs and cannot be safely cared for at home. You will then be financially means assessed to see if you qualify.

How is the subsidy financially means assessed?

The Ministry of Social Development (through Work and Income) carries out a financial means assessment that considers your assets and income, and any gifting that has occurred. If your assets are equal to or below the asset threshold, you will qualify for the subsidy to pay for most of the cost of your care. The income test then determines what you will have to contribute to the cost of your care from any income you receive.

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  • Suzie clearly delivered to myself and others a focused and friendly approach to all the issues presented to her. We had some older family member matters to resolve; Wills, Trust issues, License to Occupy, etc.. Suzie provided exceptional service, concise and sound advice which we accepted and followed through in the execution of the required legal documents. Suzie is professional, focused and pragmatic in providing intelligent legal solutions and recommendations.
    Jonathan W
  • Our family has used Rosie for everything from wills and family trusts to house purchases and sales. I can absolutely recommend her, she is easy to deal with, communicates well, makes things simple and to top it off is a lovely person to work with.  
    Tim Hawes
  • “Rosie helped us with our wills and powers of attorney and she made it such an easy process for us. She gave us a lot of advice and explained different ways we could do it, all along with a friendly professionalism. I cannot recommend her enough and will definitely be using her services in the future.”  
    Julian & Malin Dimech