The Changing Landscape for Trusts in NZ
The role of the Professional Trustee has always required robust, compliant systems and processes. Many Professional Advisers who have acted in this space have accepted the appointment as an ‘add on’ or a favour to their client.
As a result of the passing of the Trusts Act 2019, which comes into effect from 30 January 2021, many professionals are questioning whether they remain in the Trust Industry or exit, as the role and performance of the Professional Trustee will now be placed under the microscope.
This role has always required a disciplined approach, that should include as an absolute minimum the following:
- Robust Fact Find including all AML/CFT requirements
- Specific Engagement Letter detailing the services the Professional Trustee will offer, the costs associated with the establishment and on-going management of the Trust and the requirements on both the client and Professional Trustee from an administrative standpoint.
- Robust Trust Deed and Trust Supporting Documentation, including Trust Minutes for ALL Trustee’s decisions, which are recorded in ‘real time’ not 6-12 months following the decision. This should be contained in a Trust Minute Book and this should be held by both the Professional Trustee and the clients who also hold the position of Trustee.
- A mandatory Annual Trust Review service, which includes an Annual Trust Engagement Letter, Trust Minutes and a Total Trust Review process which is signed off by all Trustees.
These are just some of the services the Professional Trustee must undertake.
Our aim as Professional Trustee is to assist the entire Trust Industry, and not a specific entity or organisation, we are here to assist and provide services to both those who are looking to exit and those who wish to remain. Let’s face it, even if the number of Trusts in NZ were to fall by over 50%, there is still plenty of work for everyone who wishes to remain and be part of the solution for the Trust Industry as a whole.
Many of you who have acted as Professional Trustee, have also acted as Professional Adviser to the Trust, either in their capacity as Solicitor, Accountant or Financial Adviser. We at NZFTS have always taken the view that a Professional Trustee should only ‘wear one hat’, and hence at NZFTS, we will only act as your client’s Professional Trustee. All other services such as conveyancing, accountancy, financial advice will always remain with the existing Professional Adviser.
We believe very much in the pursuit of ‘the best practice’ approach, which is very much at the core of our vision. This ‘best practice’ approach should be measured by the quality and accuracy of the Trust’s initial and supporting documentation, the recording of Trustees decisions in ‘real time’, and the practical management of the Trust via the existence of a Trust Minute Book and an actual Annual Review process.
One of the new changes and challenges that Professional Trustees will face is the disclosure requirements to Beneficiaries and responding to information requests.
We see this as a positive, not a negative.
Clients created their Trust for the protection of their wealth for their family!
We encourage transparency within the family and hence why we have created the ‘Family Office”, which sits alongside our FamilySecure offering.
This service encourages all family members to be invited to attend the Annual Trust Reviews. Note: we also encourage all Professional Advisers to also attend these meetings, as this provides clarity to the client and those professionals who are engaged to provide accurate advice to the Trust. This Family Office concept will allow the Settlors to convey to their family members why they have created their Trust, what their intentions are both now and in the future and how the introduction of Inheritance Trusts for each family member is of particular relevance and importance in their desire to protect the families wealth intergenerationally.
Strength in Administration
With any Trust the administration process is paramount. Having reviewed many Trusts over the years we have adopted robust and proactive systems to ensure that the Trust that has been established remains ‘compliant’ throughout its lifetime.
Many Trusts fall well short of what is seen to be necessary in the administration space. Accordingly, we act as Professional Trustee in ‘real time’, which means that when decisions are made, they are recorded and executed by all the Trustees via a Trust Resolution or Minute.
When we take on the role of Professional Trustee of your NZ Trust, we take an active interest in everything the Trust undertakes. Therefore please do not feel that we are prying into your affairs, simply, we need to ensure that we fully understand all aspects of the Trust, that expert advice from your
Professional Advisers has been sought and that you fully understand the consequences of any actions.
This is where working with New Zealand Family Trust Services is valuable as we can ensure that all Professional Advisers have been engaged and consequently all aspects are thoroughly covered for your benefit.
Remember, these are your assets and we are simply assisting you in protecting these for the future. Accordingly, the administrative and recording processes that your Professional Trustee has in place will determine the strength of your Trust.
With all of this said, open discussions, transparency and working together will ultimately end with your Trust being deemed fully compliant and therefore, structurally sound to achieve your end goals.
Robust Step-By-Step Solution
To have a compliant New Zealand Trust implemented, the following process will be adopted:
One. A Fact Find is completed and signed by the clients, due diligence by NZFTS is then completed in relation to requirements around the AML/CFT legislation. NZFTS then prepares the specific Engagement Letter and Draft Trust Deed for the client.
Given the nature of this business, it is important that these aspects are strictly enforced, and the Settlors and the source of their funds are properly and clearly identified and documented.
Two. The Engagement Letter and Draft Trust Deed are then emailed to clients and an appointment is confirmed with clients to explain the Engagement Letter and answer all questions in relation to the Draft Trust Deed. The Deed is then thoroughly explained to the clients.
Three. Once all parties are satisfied, the Trust Deed and Engagement Letter are executed.
Four. The copy of the Trust Deed and completed IR596 are sent to the IRD to obtain an IRD number for the Trust.
Five. The client then selects the assets they wish to transfer to the Trust. As a Professional Trustee we then communicate with the following Professional Advisers:
Accountant: If a property is selected, confirmation will be required from your Accountant that there will be no taxation implications as a result. An example here is the ‘Brightline’ test. Note: If a property is to form part of the Trust a valuation will be obtained where necessary.
Solicitor: Where a property(s) is to be transferred, the transfer process will be attended to by your Solicitor. Your Solicitor will complete the following:
- Change of title to the Trustees
- Notification to the Insurance Company and Rates Department of this change
- Execution of mortgage documentation to reflect the new parties’ involvement.
Mortgage Broker: If you have a mortgage broker, we will engage with the broker to ensure their involvement in this process.
Financial Adviser: If investment assets are to be transferred to your Trust, similarly a valuation will be required from your financial adviser, confirming the up to date value of investments passing to the Trust.
Insurance Broker: We will engage with your Insurance Broker to discuss the possibility of transferring your Life cover, TPD or Trauma to the Trustees of your Trust, as part of your Asset Protection process.
Where an additional Trust is recommended: If Private Company Shares are to pass into your Trust, these would normally be held under a separate structure being a Business Trust and again the advice from your Accountant is mandatory.
Six. The Trustees then prepare Deeds of Sale (where necessary), Deeds of Acknowledgement of Debt, Deeds of Gift (as per below), Licence to Occupy and/or Management Agreements, Trust Minutes recording all transactions and documents executed and a Trust Minute Book is created. As the requirements around gifting are complex and unique to each individual client, there can be no ‘one size fits all’ approach. Communications must be entered into with the client’s Accountant to ensure the gifting component does not compromise you the client.
Seven. New Wills for the clients are required due to the Trust being in existence, Memorandum of Wishes should also be included at this time. The Trustees must also ensure that Enduring Powers of Attorney are put in place, updated etc. The Trustee needs to hold all these documents on the Trust Minute Book.
Eight. Clients will then receive, via courier, a Trust Minute Book that they should place in a secure location and bring this with them for each Annual Meeting, to ensure that the Clients Trust Minute Book is updated, accurate and reflective of the activity within the Trust.
Nine. We will then ensure that the Trust is placed on the Annual Review System, please refer to the ‘Annual Review Process’ page of this website for details of this process.
The Trust Review Offering
With the introduction of the Trusts Act 2019, we have already discussed the decision by many Professional Trustees to exit the Trust Industry.
Therefore, the question becomes, if the Trust is to remain in place, who is now going to step into and replace the retiring Professional Trustee?
This is where NZFTS can assist, we have a FamilySecure proposition that will assist both clients and those Professionals looking to exit the Trust Industry.
Prior to NZFTS taking on any such appointments, however, we will need to complete our due diligence on the Trust that we have been asked to act for in a Professional Trustee stance.
So, what is FamilySecure?
With the introduction of the Trusts Act 2019, the word compliance now has real meaning. Therefore, for NZFTS to take on the role of Professional Trustee we must first ensure that the Trust documentation and subsequent administration has been robust, accurate and compliant.
In many instances, the administration will be deemed non-compliant under the new Trusts Act 2019. It is important to understand that this is not the fault of your retiring Trustee, the landscape as we have indicated, has changed and therefore, so have the requirements for administration.
When completing this FamilySecure process, the outcome is to ensure that your Trust moving forward, is compliant. This FamilySecure process will identify areas that need to be remedied under the new Act. Therefore, immediate measures can be introduced to address these areas.
We are here to work together with all Professional Advisers, our role is only as your Professional Trustee. We do not offer any other services that might otherwise compete with your Professional Advisers. If you are a Professional Adviser, please visit our Professional Adviser section for a copy of our ProfessionalSecure brochure.
This process looks in detail at the Trust Documentation, and if the documentation meets the requirements and objectives of the Settlors. It will look at the Trustees recording of decisions and will provide both your Professional Advisers and you with the secure knowledge that moving forward your Trust is compliant and will achieve all your objectives.
Information to be provided
- Why the Trust was created, i.e. the objectives of the Settlors, and the relevance to today’s changing landscape? Here we will look at who the Trustees presently are and who the Discretionary Beneficiaries are.
- A copy of the executed Trust Deed.
- A copy of all documentation executed when placing assets into the Trust.
- A copy of any and all valuations.
- A copy of the Financial Accounts for the Trust.
- A copy of any gifting that has been undertaken both prior to and subsequent from the Abolition of Gift Duty.
- What assets have been transferred subsequently to the Trust and the documentation to support this.
- All Trust Minutes from inception.
- A copy of your Memorandum of Wishes, Will’s and EPA’s.
- The Trust’s Minute Book.
- What assets are held outside of the Trust?
- What Life Insurance policies, including Trauma, TPD have been transferred into the names of the Trustees?
- Any Succession Planning tools that have been instigated such as Inheritance Trusts?
As you can see, we require essentially all documentation that has been created since the inception of your Trust.
If you have any questions or would like to discuss how we can help you and your family, please contact me at firstname.lastname@example.org