HOW TO PLAY THE INTEREST RATE GAME BY JANET XUCCOA
As the Trustee Services Partner at Gilligan Rowe & Associates, I’m often asked by Trustees what we think is going to happen in the economy, the property market and with interest rates. We answer questions like this all the time as helping people make and protect their money is our business. The one million dollar question is on the table again - does a Trust fix its interest rates on its existing loans right now or not?
The last thing Trustees want to do is fix a Trust loan at a rate of say 7.25% pa and then rates move downwards the following month. Likewise, a Trustee will not be happy when they choose not to lock in their loans and find rates move upwards and against them and the Trust.
A couple of months back the answer to this one million dollar question would have been fairly clear. Now however, it really is a game of snakes and lizards and everyone is wondering which way they should roll the dice. Below are some tips that might just help you decide what to do with Trust loans.
THE RESERVE BANK AND THE OCR
In simplistic terms, the Reserve Bank’s main job is to establish and implement monetary policy. It does this by setting the Official Cash Rate (“OCR”) with an aim of controlling economic activity and inflation. How does this affect Trustees and Trust loans?
Well, again in very loose terms, Banks borrow money which they then lend on to us. Banks borrow money from several sources such as from overseas lenders, term deposit holders and of course, the Reserve Bank.
When a Bank borrows funds from the Reserve Bank, it usually does so at a rate around the OCR. When a Bank then lends funds on to us, it does so by putting a bit of a margin on those funds. So if a Bank borrows funds from the Reserve Bank at say 5% and if it adds a mark up of say 2%, we can expect that Bank to lend those funds to us at 7% or thereabouts.
Accordingly, when the OCR moves, it affects the wholesale rates Banks borrow funds at which in turn, affects the interest rates the Banks are prepared to lend money to us at.
When setting the OCR, the Reserve Bank looks about 2 years out. In other words, the Reserve Bank doesn’t just deal with what is going on right now in our economy when it sets the OCR. Rather, it looks about 24 months ahead and sets the OCR on what it expects is going to happen in the future.
In the last OCR review, which happened on 29 July 2010, the Reserve Bank set the OCR to 3%. The Reserve Bank said the economy might not grow as quickly as previously thought and inflation might not reach the heights it was previously expected to reach in 2012. What does this mean for interest rates?
If all was going according to the Reserve Banks prior expectations, the OCR would have risen to around the 6% mark by the end of 2012. That meant we could expected interest rates to be around the 9% mark by the end of 2012. But now that the Reserve Bank has brought back its expectations, it thinks the OCR will only reach 5% by the end of 2012. This of course means interest rates could come back a bit, to around the 8% mark.
So given the above information, does a Trustee fix or continue to float the Trust’s existing loans?
FLOATING RATES
If a Trust’s existing loans are on floating rates right now, you might as a Trustee, choose to continue along this path if you think New Zealand’s economy will be long and slow in growing. Of course if you hold this view, you’re be expecting interest rates to stay low and the OCR not to rise as quickly or as high as was previously envisaged. You will recall the Reserve Bank has recently indicated this.
As a Trustee you might also continue to float if you think the global situation (especially in Europe) will deteriorate. Why would you do this? Well a deteriorating global situation could lead to a decrease in the rates our Banks pay to pick money up off shore. If Banks have to pay less to get the moolah that they on-lend to us, then perhaps they won’t charge us so much for the pleasure of borrowing it off of them eg: fixed rates will come down.
If a Trust is in funds, perhaps it receives rental income for example, you may as a Trustee be intending to pay off some of the money the Trust owes the Bank on its existing loans. If this is the case as a Trustee you would probably also choose to float because if you fix the Trust’s loans, penalties may be incurred for making early repayments.
FIXED RATES
If you are thinking you might fix the Trust’s interest rates on its existing loans, you are probably of the mind that the International Monetary Fund growth forecasts will come true. Likewise, I expect you will believe the New Zealand economy is going to experience fairly rapid growth and inflation in the near future. You might be basing your Trustee opinion on the fact that the vehicle sales, dairy, forestry, education, exports and manufacturing sectors in our economy have grown and will continue to grow at a relatively quick pace. Of course if you hold these beliefs, you will be expecting fixed interest rates to increase. As a Trustee wanting to do the best for the Trust’s Beneficiaries, you will be hoping to get in early so the Trust doesn’t have to suffer the rate increase later on. Hence, you are likely to fix the Trust’s interest rates now.
The Trust might also be in a financial position of being able to pay the additional monthly increase in payments it is going to experience if the rate is fixed now. I say this because if the loan is currently on a floating rate, the Trust is probably paying around the 6% pa mark. But if as a Trustee you choose to lock in the interest rates right now, you are most likely going to do so around the 7.0% to 7.3% pa mark. Consequently, the loan repayments will increase in size.
Of course the extra the Trust pays in loan repayments on a fixed rate might well be worth the peace of mind that is gained. Which is another reason why a Trustee might choose to fix their interest rates.
LOOK LEFT AND LOOK RIGHT BEFORE YOU JUMP
This heading says it all. Whatever you decide to do, get some information before you implement your decision. Do the numbers. Work out the figures. Check to see which alternative will be to the Trust’s financial advantage. Get help from someone independent. By the way, your Bank is not independent.
If you need help doing this financial check, then talk to us. Over the years we have helped thousands of clients with their Trust affairs. Of course a large part of our role is working out what is advantageous to clients from a financial perspective. This includes Trust clients and businesses and individuals. So give us a call on (09) 522 7955 for a free chat. We’re here to help you.
Until next time …ciao.
Janet.
Family Trust Gifting: A Gift For You
Janet Xuccoa
Hello Everyone
Well the New Year has well and truly started for us. In Trust Land we’ve conducted hundreds of Annual Trustee Meetings. Out of those ATM’s we found a common issue arose – Family Trust Gifting. So I thought I’d talk a little about Gifting and hopefully remove all the confusion.
Additionally, for those of you who didn’t know, my GRA Birthday is fast approaching. That special day where it all began for me as your Professional Trustee was 29 March 2005. So to celebrate my GRA birthday, we are going to make a Gift ourselves.
Read more about that at the end of this post.
Family Trusts: How to Gift
You cannot simply transfer your assets to the Family Trust. If you did this, the law would deem that you have made a gift and gift duty would be payable. So to avoid gift duty, you need to sell your assets to the Trust at market value.
When you do this, the Trustees will probably not pay you cash for the assets. Rather, they will give you an IOU, which is often referred to as a Deed of Acknowledgment of Debt. This Deed of Acknowledgment of Debt will record that the Trust owes you a particular sum of money for the asset it has just purchased from you.
The balance owed to you by the Trust under the Deed of Acknowledgment of Debt will be an asset in your hands and a liability to the Trust. To reduce down the credit balance owed to you by the Trust under the Deed of Acknowledgment of Debt, you need to gift.
The Trust Gifting Process
Gifting is a process involving you annually forgiving part of the debt owed to you.
At law, you are able to forgive up to $27,000 per person, per year, without incurring gift duty. If you chose to forgive more than this balance, you will be liable to pay gift duty on the amount of the gift you have made over and above this $27,000 threshold.
The gifting process involves five steps: |
- You as the Donor (the person making the gift) will sign a Deed of Partial Forgiveness of Debt and Gift Statements;
- The Trustees as Donees (the people accepting the gift) also sign the Deed of Partial Forgiveness of Debt and a Trustee Resolution noting on behalf of the Trust their acceptance of the gift;
- A copy of the Deed of Partial Forgiveness of Debt and the original Gift Statements are filed with the Inland Revenue Department;
- The Inland Revenue Department stamps the Gift Statements and returns them to the person who prepared the documents; and
- The stamped Gift Statements should be filed with the Trust’s papers and the Trustee Resolutions accepting the gift should be filed in the Trust’s Resolution Book.
Some people try to shortcut this process and only have the Donor sign the gifting documents. I think this is a dangerous practice as I believe you should be able to show that a gift has been made and accepted.
Why Gift?
Each time you gift you transfer in more wealth to your Family Trust and you transfer wealth away from yourself. Hence if a creditor attacks you personally and all the assets are in the Trust, those assets should be protected.
This means that should anyone bring a successful legal claim against you, they will not be able to satisfy their judgment against your personal assets as you will not own any assets of significance. Rather, it will be the Trust that will hold all the assets and all the wealth.
Of course having said the above, you cannot transfer assets to the Trust to avoid creditors that are already on the horizon. Additionally, the correct transfer process that I have previously discussed must have been undertaken. Most importantly, the administration of the Trust must have been carried out correctly.
Potential Family Trust Gifting Problems
There are two problems I frequently see in practice. The first involves no gifting and the second involves incorrect gifting.
People often believe that once they have completed their first gift they either don’t have to gift anymore, or that their gifting will happen automatically. They are usually wrong on both counts.
If a credit balance is owed to you by the Trust, you need to keep gifting until that balance is eliminated. You also need to ensure that someone actually completes the gifting process. Often this will be a Professional Trustee.
If you do have a Professional Trustee you should ensure they prepare your gifting documents for you. They may for example think one of your other advisors is taking care of this. They may even forget. Accordingly, your gifting may become overlooked. To avoid this, simply diary out your gifting date and call your Professional Trustee or whoever is completing your gifting documents and prompt them.
Incorrect gifting is the second issue that can arise. This can occur when financial statements are not prepared and financial statement reviews are not completed.
Simply put, what happens when this issue arises is the balance recorded in the Deed of Acknowledgment of Debt that the gifting is based on, is not congruent with the balance noted in the financial statements.
This incongruence arises for different reasons, often because the Trust has given back funds to the Settlors. Accordingly, the credit balance owed to the Settlors is less than that shown in the previous year’s gifting documents.
When financial statements are not prepared and the annual financial statement reviews are not completed, the issue never becomes identified and lays dormant. Identification only occurs when an individual or a Trust is questioned or attacked. That’s when the problem is highlighted and comes home to roost.
Of course this can be avoided if you make sure the Professional Trustee does their job and ensures annual financial statements are prepared and carries out that all important annual financial statement review.
Gifting Summary
I hope the above shines some light on Gifting. As you can see, it’s a really important part of gaining asset protection and has to be completed correctly.
Failing to have your Deeds of Acknowledgment of Debt contain the all important Hawkins and Entrenchment clauses can undo all the good work gifting brings about. Not gifting from the correct balances recorded in financial statements just creates havoc with the gifting programme. Taking short cuts with the preparation of the gifting documents themselves doesn’t pay.
So if you are going to set up a Trust and put assets into it to gain asset protection, take care to correctly complete your Gifting.
Our Gift To You
To help celebrate my GRA birthday here is our Gift to you: (This promotion has now finished).
We invite all clients and prospective clients who do not have their annual gifting documents currently prepared by GRA, to take advantage of this gift.
Let us complete your first years gifting for absolutely nothing. Yes that’s right - completely free of charge. If we do this for you, it could mean you save several hundred dollars. (This promotion has now finished).
As with all offers there are a couple of conditions…
First, your Deeds of Acknowledgment of Debt have to be up to date and in a form acceptable to us. Secondly, we must prepare your gifting documents for the 2011 and 2012 years at our standard fees. By the way, those fees are $200 + GST per person per gift.
Lastly, this offer is only available for a limited time. (This promotion has now finished).
So, don’t look a gift horse in the mouth! Contact me now by email or telephone and take us up on our Gift. By the way, with all the money you are going to save through this Gift, remember to send your Professional Trustee a Birthday Card – she’ll really appreciate it (hint!)
All the best.
Janet Xuccoa BCom LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? For Help, please contact us for an interview. Please go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
Annual Trustee Meetings: Explained
Hello Readers
I hope you’ve enjoyed your Christmas break and are now fully rested, ready to tackle the New Year.
Usually most of us have some spare time at the beginning of a new year and I recommend some of this time being used by Trustees to conduct an Annual Trustee Meeting (”ATM”).
An ATM is our way of of taking care of your Family Trust to protect you, your family and your future.
So what exactly is this and how does it help the Trust?
Well, Trustees have a duty at law to annual review the affairs of the Trust so by holding this Meeting they are satisfying their duty. Additionally, this meeting will go a considerable way to ensuring the successful operation of the Trust and can be instrumental in avoiding a Trust failure.
The Value of an ATM
To demonstrate how an ATM can help a Trust, let’s take the example of Mr and Mrs Boiler. They were the Trustees of the Boiler Family Trust which contained the following assets:
* Family home;
* Shares in Boiler Orchard Limited; and
* $47,000 in cash on term deposit.
When I looked at this Family Trust it initially appeared to be in good health. But it soon became apparent when reviewing the financial statements and talking to the Trustees that the assets of the Trust were under threat. You see the liabilities of the Trust had increased in the last two years. I wanted to know why that was.
The Trustees told me that the Trust’s orchard business had done well over the years but in the preceding two years a large supermarket had come to town. When this occurred, the town’s population purchased all the goods they needed from the supermarket. T
This meant the produce the orchard produced wasn’t selling and what was selling had to be sold at a heavily discounted price. As a result, the Trust had suffered losses in the last two years and had to increase its Bank borrowings just to serve debt.
I was not the Professional Trustee of this Trust but Mr and Mrs Boiler had come to me for advice. I immediately recommended the orchard be sold. It was a case of selling in an orderly fashion or in another year, having the Bank foreclose and sell. The latter option was not attractive. A sale proceeded and financial disaster was avoided.
Family Trust Lessons
What’s interesting about this case is if this Trust had a Professional Trustee who had conducted with their co-Trustees an ATM, two things would have been identified.
First, the news that the supermarket was arriving in town would have been aired.
Secondly, the Professional Trustee would have considered this broadcast and discussed the need to sell the orchard business. The Professional Trustee would have given this advice because it would have been clear what was going to happen.
Hopefully, all Trustees would have agreed to sell the business and the need to increase debt would have been avoided. Overall, the Trust would not have suffered the loss it did as the Trustees could have taken action much sooner than what they did.
I hope you can see from the above example the value in holding an ATM.
ATM Checklist
At the Meeting several points should be addressed. These are as follows:
- Trustees should identify and discuss the objectives of the Trust and determine whether those objectives should be carried on in the forthcoming year;
- A schedule of assets and liabilities of the Trust should be completed and analyzed. Trustees should in particular discuss how well the investments are performing and how comfortable they are with the level of debt the Trust is carrying or exposed to.
- Trustees should check the assets of the Trust are well maintained and if maintenance is necessary, should make a list of what is required and who will be instructed to carry out maintenance out.
- All insurance policies for the assets of the Trust should be checked to ensure insurance cover is adequate. Policies must be checked that they are held in the A report by the Professional Trustee and the findings of the Financial Statement Review they have undertaken, should be given to all other Trustees.
The above list of points is not exhaustive but merely suggestive. This is because the matters discussed at each Trust’s ATM may differ depending upon the nature and objectives of the Trust.
Lastly and most importantly, once the ATM has been completed, the Minutes of the ATM should be prepared and signed by all Trustees.
Those Minutes should contain the decision the Trustees have unanimously made regarding whether or not to retain the current assets of the Trust given the nature of those particular assets and taking into account the objectives the Trustees have. In my experience, this task is best carried out by the Professional Trustee.
I hope this information spurs you on to holding an ATM. As always, if you have any queries, would like a review of your Trust or need help, just contact us.
A review of your Trust and structures may end up saving you money and a lot of heart-ache. We work by phone, email or skype for your convenience.
Best wishes for the New Year.
Janet Xuccoa BCom LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
A Christmas Message From The Professional Trustee
Christmas is always a time for celebration but in my book, it’s also a time for reflection and some forward thinking.
What did the year bring and what will the new year look like are often questions that cross my mind as I see one year out and another year roll in.
This year, we’ve all been touched by the global events that have faced our world. New Zealand is not an island that stands outside the global economy and we have truly felt the effects of the global recession at home. The majority of our markets, including retail, property, tourism and exports have all taken a bit of a hit. The labour market has definitely felt the effects of the global recession and we all know how the finance / credit market has tightened and affected us personally and our businesses.
They say however every cloud has a silver lining and I think this is true with respect to the global recession we’ve all faced this year. Out of emergences, better people and better processes emerge. We set about the subject of learning and we start to think about how we can manage our lives, our households and our companies more effectively and efficiently. Often, we emerge and find ourselves in a much stronger position simply through having to focus on how to survive and build a better, stronger future.
Additionally, we frequently ask ourselves what makes us really happy. This is a very interesting question because it usually involves not only having enough assets and money to do the things we want to do, but it also encompasses having great relationships with our family and our friends. And to build those relationships we need time. So once again, we look at where and how we spend our time and how we can achieve closer relationships with those that we love whilst at the same time, meeting our work and business commitments.
As the Professional Trustee here at GRA I’ve seen lots of good things this year. In particular, my fellow Partners and I have pushed really hard to dig deep and gain an in-depth understanding of our clients’ needs and wants. This work has lead to us completing over 128 presentations throughout New Zealand in 2009 and to us developing some innovative products and services that have assisted our clients with the issues they have been facing. Some of these new products will be released next year and I just know our clients are going to find them very instrumental in helping them achieve their financial goals.
One of the biggest highlights for us as a firm and for me personally as the Professional Trustee, was being awarded the prestigious Corporate Trustee of the Year Award by the New Zealand Trustees Association. This was the first time in the history of the New Zealand Trustees Association that an award like this had ever been given to a Corporate Trustee and we took it home!!! That made me incredibly proud. And a little bit of pride is a good thing in my world because it makes us continually strive to deliver top notch service to our clients.
Unfortunately, I’ve also seen my fair share of friends and clients feeling pain and stress this year. Some of our clients’ businesses have been adversely affected by the recession and some have even suffered personal relationship problems. One person close to me didn’t cope well with the pressures the recession brought at all and sadly isn’t celebrating Christmas with any of us this year.
As a firm and as the Professional Trustee, we do our upmost to help clients when they face really difficult times and we try hard to help them make decisions in their lives that will either solve their issues or at the very least, help minimize their pain. As a human being I really sympathise and empathise with people who face difficult problems. I’ve lived long enough and been though enough life experiences to know that hardship can strike each and every one of us without warning.
So, I guess this year I can say I’ve seen the great tapestry of human life. I’ve witnessed the good and the bad. Throughout the year however one thing has remained constant in my mind. This one thing has come up time and time again when I have been presenting and meeting prospective clients.
Many people when they are enjoying life and events are going their way, do not pause to consider what could occur if life was heading in the other direction - southwards. As a consequence, they fail to keep their eye on the ball. They forget to strategise and plan and take steps to protect what they have worked so hard to achieve and gain. As a result by the time the horse has bolted from the stable and they are faced with difficult times, it is too late to put a plan into place.
So the one thing that I urge everyone to do over Christmas is take a moment. Think about this …
Have you done all that you can do to put your affairs in order?
Have you taken every step you can take to protect your assets?
Do you have an up to date estate plan?
Have your written your “Letter” that I’ve blogged about?
Have you sat down with us and spoke to us about your forthcoming year, your goals and aspirations and asked us how you can legally minimize your tax liabilities?
Have you had a meeting with us to discuss how you might get ahead financially?
A half hour discussion with us could be the difference between maximising your life and the economic opportunities available to you, or not.
The last thing I ask everyone to do over their Christmas break is enjoy and savour each moment. Think about giving and serving your family and friends. Be thankful. It may well be true that not everything has gone as planned this year in your life. Things may have been a bit hard and in certain cases, downright difficult. But there is a new year to plan for and if you have friends and family around you then you are very rich indeed in love and support. It’s these things I believe that give us genuine happiness and satisfaction.
On behalf of the Trustee Services Team and the Professional Trustee I want to take this opportunity to wish all of you the very best for Christmas. Christmas is meant to be a time for pure delight so fill each moment with joy and cheer. Savour this special time. Have fun with each other and have happy and safe holidays. Remember, it’s the memories that we create that we look back on. So, ensure the memories you are building are happy ones that you will be glad to treasure and pull out in the future and relive.
As always if you need assistance over the Christmas break you can contact myself, Janet Xuccoa, by telephoning 021 479 630 or you can telephone our offices on (09) 522 7955 and leave a message on our message service. This service is monitored.
Lastly, you can send me an email on jx@gra.co.nz or Request Contact. When I’m not dealing with Santa and his Elves I’ll be monitoring my emails so will respond to you. Alternatively, you can call Juliette Egden, our Trustee Services Manager on 09 550 8054.
Thank you for all your support in 2009,
Janet Xuccoa BCom, LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Email: jx@gra.co.nz
Ph: +64 9 522 7955
Recessions bring about all sorts of changes. For example, in the legal beagle world, frequently people stop purchasing houses, so lawyers run out of conveyancing work. Conversely, money starts to get tight so people start to sue each other. This of course means extra litigation work for the lawyers.
Recessions can also bring about some pretty dramatic personal life changes. For instances, people can be made redundant which in turn, creates financial pressure. Frequently, this pressure spills over into their personal relationships.
Sometimes, facing financial pressure can bring a couple closer as they bury down in the trenches together. But often, the strain can lead to a couples’ relationship breaking down. When this occurs, people separate. We know this because in ordinary times about 42% of Kiwis do just that – separate.
When a couple separate they usually divide up their assets. If their assets have been placed in a Trust the inevitable question arises: What happens to the assets in the Trust? This question is of great importance because when a relationship breaks down, there can be a lot of fighting happening and frequently the only thing left standing is “The Trust”.
An Ounce of Prevention is Worth a Pound of Cure
First, before assets are placed in a Trust, all individuals should obtain good legal advice. This is absolutely essential in my view because when assets are moved from an individual to a Trust, an individual’s property rights are affected.
Secondly, the legal advice obtained by the parties will usually include a very strong recommendation for the parties to enter into a legal Property Relationship Agreement. Again, in my view, this is essential because it will set out the basis for future reference. Should a relationship breakdown after the assets have been transferred through to the Trust, this Agreement will become invaluable.
The individuals will be saved a huge legal bill as they will not have to go to Court to argue over the assets. Additionally, and most importantly, those same individuals will not have to suffer the enormous emotional burden going to Court places on a person.
Thirdly, an actual Agreement should be entered into between the parties. This seems almost a moot point considering we have just discussed the absolute need for the Agreement but you would be surprised how many people talk about getting an Agreement but never actually do it.
The Agreement, if prepared and executed, is likely to set out a variety of matters including an acknowledgment of what assets belong to each of the parties before those assets are transferred to a Trust. It may also set out what will happen to those assets when they are transferred through to a Trust should the parties ever separate.
Lastly, if an Agreement has been entered into by the parties and assets have subsequently been transferred to the Trust then the issue is pretty easy. This is of course providing the Agreement stated what was to occur should the parties ever separate. The Agreement is just placed before the Lawyers and hopefully everyone can agree to implement what the Agreement says.
In the normal course of events what this means is the assets of the Trust are sold, loans are repaid and the balance of the sale proceeds are put into the Trust’s bank account, ready for division between the parties.
Often at this point in time the existing Trust is made into one of the individuals own Trust and another Trust is set up for the other remaining party. So in effect, each of the parties ends up with their own Trust.
Then half the sale proceeds are sent to the new Trust and the other half of the sale proceeds simply remains in the existing Trust (which was previously turned into one of the individuals Trust).
two is better than one
It’s no secret that many smart people have two trusts. One each. Each Trust will hold its own assets and frequently a half share in the family home. Why have two Trusts rather than one? Again the answer is simple. If you have two Trusts you have the ability to deal with property that was solely your own before it went to the Trust. This could include family heirlooms.
Also, your own Trust can be the recipient of any inheritances you might receive, such as money from your own Parents. Overall, having your own Trust means you can deal with the assets in the Trust as you and your Trustees wish. You can do this without the consent of your spouse (assuming they are not your Co-Trustee).
Lastly, a very large advantage of having your own Trust is you then have the ability to leave particular assets to specific beneficiaries such as children you had prior to your relationship.
As mentioned above, another great benefit of having two Trusts is that both Trusts can own a half share in the family home. When two Trusts are involved they are also very likely to have entered into a legal Agreement which would have set out the steps to be taken if the parties ever separated.
So overall, a two Trust structure is frequently far superior to one. You do have to be aware that you will have double the set up and running costs of course, but this disadvantage can be far outweighed by the benefits a two Trust structure can confer.
when prevention hasn’t been taken
Here’s where all the trouble begins. The parties don’t ever enter into a legal Agreement and cannot agree on what is to happen with the assets that are in the Trust.
When this occurs only the lawyers win as the battle royale begins and legal fees start to mount. When I see this happening I call both clients. I try to give them a bit of a reality dose. This includes reference to the movie “War of the Roses”. If anyone has ever seen this movie we all know who the winners are and that is the Lawyers. A couple can spend literally thousands of dollars in legal fees as they fight over the assets of the Trust. Let’s face it … a house worth say $500,000 isn’t worth a couple spending $100,000 on legal fees fighting over.
Often, when you look at what is really going on, the individuals aren’t fighting over the house at all. They are fighting because they are hurt. The trouble is, that fight costs lots and lots of money if it goes on for a long period of time. It is also emotionally draining.
I’m not advocating that an individual shouldn’t engage lawyers when and where they are needed. All I’m saying is a little common sense needs to prevail in these situations. As a Professional Trustee I try hard to calm the parties and seek some form of agreement that I can send through to their Lawyers.
But if you can’t get an agreement, then what happens? Well the matter just has to go to Court. Which means the Courts look at how the Trust was established, how the Trust has been run over the years, who has control of the Trust, what assets have been transferred to the Trust and what loans the Trust owes back to the individuals.
Other matters can also come under scrutiny but in the main, these are the points the Courts will look at. Once the Courts review the matter they may make a variety of Orders. These can include putting an independent person in to run the Trust (act as a Trustee) as well making a monetary award.
I guess there are 3 main points to take from this article.
1. Get great Trust advice when setting up a Trust from a professional who really understands asset protection, estate planning, tax minimization and financial accounting. Get the very best advice you possibly can.
2. Seriously consider a two Trust structure and if you do decide to go down this route, make sure both Trusts have a legally binding Agreement as discussed above.
3. Get good solid legal advice and enter into a legal property relationship agreement.
Remember, if you want your assets to be protected, use a Trust. But do the right thing … get the right advice, from the right people and chose the right Trust structure to ensure that asset is truly protected.
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
Dad, Where’s My Inheritance?
An interesting case has recently been handed down from the Courts. This case now provides Parents with the rights to strip their children of inheritances.
The judgment goes against what was previously believed good law.
To date, we have all thought that parents owe a duty to their children to provide for them in some way upon their deaths. The Courts have been littered with cases where children have brought claims against the estates of their parents when their parents failed to leave them a little something…
By and large the Courts have been sympathetic and have awarded children something out of their parent’s estates, even, in some cases, stating parents have a duty to provide for their children, irrespective of the child’s age.
Well that reasoning may go by the board if the latest case is anything to go by.
The Case
The case goes something like this. Dad, mum and two daughters lived happily together but when mum died and left her estate to dad, the two daughters fought over the estate. The result was the daughters ended up with $56,000 whilst dad received $20,000. The ultimate outcome however was the daughters fell out with their dad. This is a huge cost – far more than the money involved that’s for sure.
Dad decided that he would place his affairs with the Public Trust and so he completed a Will in which he left nothing to his daughters. He also left instructions with the Public Trust that they were not to tell his daughters about his death, his funeral or his Will.
Dad’s statement to the Public Trust went along the lines that his daughters gave him nothing, not even respect and that is what he intended to give them on his death - Nothing.
When Dad died the Public Trust actioned his instructions. Herein lies the problem. No death notice was published. The Public Trust did however advertise for creditors of the estate to come forward but none ever did. This is standard policy when dealing with a personal estate.
The Public Trust did not inform the daughters and the estate, valued at circa $250,000, was passed to his de facto partner, in accordance with the Deceases wishes expressed in his Will.
The eldest daughter, learned of her father’s death, about two years after the event. Two years is a long time in legal beagle land and time had run out for her and her sister to lodge a claim against her father’s estate. This however didn’t deter her. Instead, she sued the Public Trust, citing they had a legal duty to advise her of her father’s death. If she won the claim, she would likely received approximately $62,000.
The Judgment
The Court however didn’t quite see the daughter’s side of the story. Instead they issued a judgment stating that executors (the Public Trust in this particular case) did not have a general duty to inform potential claimants about a death or even a general duty to advertise for claimants. Rather, executors have a duty to tell a person only when they know that person wishes to make a claim. So, executors have to have actual knowledge of a potential claim rather than pre-supposing someone might make a claim.
The Court finished up by saying that the Public Trust did not have actual knowledge that the daughter would make a claim and therefore, was not liable.
Lessons for Us All to Learn
So what does all this mean for parents and children?
Well to start with, we want all families to play together and stay together. The emotional cost of falling out with each other is huge.
Secondly, we would like to see all assets held in a Trust not in a person’s personal name and personal legal capacity. Why? Because Trust assets can be passed from Trust to Trust meaning they can be passed from a parent’s Trust to a Trust established for their children upon that parent’s death. This protects those assets from creditors and the Official Assignee and of course, negates gift duty.
Thirdly, everyone should have an up to date Memorandum of Wishes. This document will tell your surviving Trustees what you want done with the assets of the Trust when you are dead.
Lastly, everyone should have a current Will which deals with the assets that you do actually hold in your personal name at the time of your death, such as tools, jewellery, etc.
Of course, asking your parents what they intend to do with your inheritance is often a difficult subject to broach. A way of opening up this type of discussion with your parents is to tell your parents what you intend to do with your own assets for your own children. Alternatively, you could always watch our DVD on the subject with your own parents and discuss the matter after looking at the DVD. It can be a difficult topic of conversation but there are ways to handle it and as always, open communication is the best policy.
One of the lessons to be taken from this case is if you want to protect the inheritances you are going to receive from your parents and if you want to protect the inheritances you intend to leave to your own children, ensure you take action.
Don’t leave assets in your personal names but put them into Trust and ensure you have current Memorandum of Wishes and Wills in place. Also make sure you have a good discussion with your parents about the topic and get them to transfer their assets to a Trust, later to be transferred on their death to your own Trust.
As always, if I can be of help with any of these conversations, just let me know. You can request an interview for a no obligation and confidential chat.
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
What’s Your Game Plan when YOU die?
Last week a friend of mine unexpectedly passed away.
His passing left behind many family members and friends in great pain. It also resulted in quite a nightmare when it came down to dealing with his business and his personal assets.
Since this is a personal matter, you may be asking…Why am I writing this blog post and sharing this with you? Well I’m hoping that by telling this story, you will put in place the steps to ensure your affairs are in order - to ensure continuity for the people left behind when you die.
You see when someone dies, its hard enough having to deal with the loss. Having to try and take action to protect assets and run a business at the same time just makes a bad situation even worse.
Within two hours of death all Gilligan Rowe & Associates Partners had gathered and pledged help. The deceased was my friend, not a GRA client. But when a Partner at GRA needs help, all GRA partners stand together (that’s the wonderful thing about this firm).
Within 4 hours I had visited my friend’s business and spoke with his staff. Every staff member was in shock but every one of them agreed they’d help.
The Game Plan
The first job was to secure the technology in the business. This was not easy. No one in the business had any idea of the passwords the deceased used. This of course made our second job harder.
The staff (all 58 of them) had to be paid the following day. So now we had a situation where we had no access to money because we had no access to technology. If things weren’t bad enough, word was spreading within the industry and we had staff asking us what was going on, were they still employed, should they still go to their jobs tomorrow and would they get paid.
We had to come up with a solution quickly. We scrambled and managed to deal with the computer issue but it was pretty stressful at the time.
The next issue we had to deal with was the staff. All human beings like some semblance of order and continuity of staff was a question on everyone’s mind. So we called a staff meeting and amongst tears, told all the staff it was business as usual.
A serious issue that we had to deal with was how to protect the deceased’s business. One of the competitors was already visiting the businesses clients and offering his services. We dealt with this by putting in a temporary CEO and getting that CEO and the lead salesman in the business out visiting the clients, assuring them that despite the awful set of circumstances before us, the business would go on.
The last really urgent issue we tackled was trying to ascertain what assets the deceased actually had. Turns out he had a Trust, but that Trust contained both his personal assets and his business assets, and debt was completely cross-secured. Our investigation revealed that there was life insurance. We were all thankful for this because that would at least take care of some of the debt.
On closer checking however our hopes were dashed… The deceased had cancelled his life insurance because he was in the midst of taking out new policies with another insurance provider. We looked at this issue and decided to brief his lawyers on what we felt had to be done.
At that point, we all thought we’d done what we could, so we returned to our own company and got down to the business of dealing with our own clients’ affairs.
Lessons Learned and Checklist
A couple of days later all three Gilligan Rowe & Associates Partners discussed what could have been done differently. You see, we often look at situations in an attempt to improve the services we offer to our clients. We came up a few points and think that if these things had been done, dealing with this death would have been so much easier.
1. Write down somewhere the name of your bank account numbers and passwords. Keep this document secret. Put it with your lawyer or your accountant or better still, both professionals. Stipulate that the document is only to be opened and read upon your death.
2. Write a note to either your spouse, your lawyer or your accountant. Tell them what steps should be taken on your death. For example, does someone owe you some money which hasn’t been recorded in say your financial statements but which you want collected on your death? Do you want to be an organ donor? Write your wishes down so they are clear. Again, stipulate that the document should only be opened and read upon your death.
3. Ensure you have a current Will and that your lawyer, accountant and your spouse have a copy of that Will. Let me help you if you do not have one or need it updated.
4. Never cancel a life insurance policy without having another one in place. 5. Keep a copy of your life insurance policy with your lawyer, accountant or spouse.
6. Ensure the life insurance policy is in the names of the Trustees of your Family Trust.
7. Have a Trust but make sure personal and business assets aren’t mixed up. For example, put personal assets such as your family home in your Family Trust and keep your business assets, such as the shares in your business in your Trading Trust.
8. Have a current Memorandum of Wishes for each of your Trusts. Tell your surviving Trustees in your Memorandum of Wishes exactly what you want done with the assets of the Trust when you die.
9. Leave a copy of your current Memorandum of Wishes with your lawyer, accountant and survivor.
10. Have a game plan for your business. What exactly should happen on your death? Who should be put in the driving seat until your Trustees or your Executors can handle things? Write this down in detail, because if you have a thriving business, this plan is going to be absolutely invaluable in ensuring your business survives after your death.
11. Leave a set of house keys, business keys, etc with a friend so that someone has access to your business and your home to feed your pets and water your pot plants. You might have passed on but your pets and plants are still here and still need care.
I’m sure that there are many more tips we could follow. The above isn’t meant to be a comprehensive list. It’s just a list of suggestions to make life a little easier for those left behind so that we can get on with the business of grieving.
Of course we at Gilligam Rowe can help with any or all of the items on this checklist. For a confidential and no-obligation discussion on any of these points including trusts, wills, insurance or asset planning advice, please contact us.
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
Family Trusts Explained
Everyone tells you to put your assets into Trust and they even tell you what benefits a Trust will bestow upon you but very rarely does anyone take the time to explain what a Trust actually is.
Well this blog post is going to do just that!!!
What Actually IS a Family Trust
A Trust can be described as many things and is often thought of as a device, a holding vessel or a protection vehicle. Sometimes it’s helpful to think of a Trust as a concept and if I apply this analogy I would liken a Trust to a ship, travelling over high seas. The Captain and his staff are charged with steering the ship, looking after the passengers and the ship’s cargo. Thus, the Captain and his staff are the Trustees. The passengers are the Beneficiaries and the cargo can be thought of as comprising the assets of the Trust.
But in my view however, a Family Trust is a whole lot more than simply a device or a concept. It’s more a collection of relationships. The person creating the Trust (called the Settlor) has a relationship with the people they put in to run the Trust for them (called the Trustees). The people in charge of running the Trust also have a relationship but their relationship lies predominately with the people the Trust has been set up for (called the Beneficiaries).
So in a Trust a daisy chain effect is occurring. The Settlor places their faith in the Trustees to run the Trust in accordance with the rules they have laid down in the trust deed and the Beneficiaries place their trust in the Trustees to look after the assets of the Trust and to act in their best interests.
For those readers who want to know how a Trust is defined in legal speak, its often been said a Trust comprises a set of equitable obligations with the Trustees owing obligations to look after the property they have control of for the benefit of the Beneficiaries.
How Long Does A Family Trust Go On For?
How long do all these relationships go on for? Well that will depend.
First, the Trustees generally, in the ordinary course of events, will only owe an obligation to a Beneficiary whilst they are actually a Trustee. So as soon as they retire or resign as a Trustee, their obligations cease.
Secondly, all these relationships will come to an end when the Trust ends. When does this occur? In the first instance, it will be within 80 years of the Trust being set up because a Trust cannot exist for more than 80 years at law. But in some cases, a Trust is brought to an early end by the Trustees. This process is called ‘early vesting’ and it simply means bringing the date that is specified in the trust deed forward. So when this happens, all the relationships will cease as well.
Why Would You Even Want A Family Trust?
Lots have been written about the reasons why someone would want to set up a Trust but in the main, there are 4 motivations for creating a Trust:
Reason 1 – Asset Protection
In my view this is probably the primary rationale for setting up a Trust – to move assets into the Trust so they become protected against creditors, WINZ and other parties. But remember, if the documentation isn’t correct and if the transfer documents don’t contain those special Hawkins and entrenchment clauses we so often talk about, asset protection will indeed be threatened.
Reason 2 – Tax Minimisation
I’ve said it often enough – no one wants to pay more pingers to John Keys than what they have to. Trusts, if established correctly, can help you legally minimize your taxation liabilities. A caveat however applies. You must take specialised advice when setting up Trusts and other structures to ensure the structure is tailor made to suit you and your circumstances.
Reason 3 – Asset Testing
I’ve already written a blog about this so there isn’t much of a need to say anything lengthy here expect this – if you need help in the form of a subsidy from the government, such as a rest home subsidy, you will be means tested. If you own nothing, the subsidy will be available immediately. Moving assets to a Trust under the GRA method means you will be asset poor but you will have control over the assets that are held by the Trustees of your Trust. Remember the GRA motto – own nothing but control everything!!!
Reason 4 – Provision for Future Generations
Often a family will acquire assets and will want to ensure future generations can enjoy those assets. For example, Mum and Dad might buy a Kiwi Bach and want their children and their grandchildren to be able to enjoy it for years to come. One way of ensuring the asset is protected for future generations to use and enjoy is by putting it in a Trust with specific trust deed provisions so that the Trustees cannot sell the asset in future times.
SUMMARY
From reading this article you might already know how I think a Family Trust can be explained. Simply put, I believe it’s a whole set of relationships which help you lose your tie and keep your shirt. Those relationships help you relax because by their very existence they protect your hard earned assets now and in the future for you and your family.
So … if you want a bit of peace of mind and if you are serious about protecting what’s yours, please contact me me to discuss establishing a Trust. Alternatively, if you already have a Trust in place and want to ensure you get the very best out of it, call me and I will help you travel those high seas safely.
Best wishes,
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
What is a Professional Trustee? Do I Really Need One?
Many people ask me what is a professional trustee is, what they do, and what value they can bring to a trust. Often, these people are considering how they want to structure their asset holdings and what sort of return they want to make from them.
The simple answer is that a professional trustee who does their job keeps you out of trouble and usually, out of expensive trouble that you wouldn’t have seen coming.
We’re like the Family Trust Police.
What is a Professional Trustee?
A professional trustee is a person (or a company) who acts as a trustee of a trust. That person (or company) has no interest in the assets of the trust – that is they are not a beneficiary of the trust and are not entitled to share in the assets of the trust.
What does a professional trustee do?
Generally speaking, a professional trustee’s function is to work with the other trustees of the trust in looking after the beneficiaries, the trust assets and in administering the trust. The difference is that a professional trustee is trained to understand what has to be done when running a trust.
Some of the functions professional trustees carry out are:
• arranging meetings with the other trustees to discuss transactions the trust is going to undertake, such as buying property, purchasing shares, obtaining loans, etc;
• making unanimous decisions with the other trustees;
• considering the existing investment policies of the trust and discussing with the other trustees whether these policies should be changed;
• signing appropriate documents with the other trustees such as agreements for sale and purchase and loan documents;
• Ensuring all the decisions the trustees make and the affairs of the trust are correctly recorded in minutes and in deeds;
• checking gifting is completed;
• other miscellaneous matters such as checking insurance policies are up to date.
Ultimately, a professional trustee’s role is to check that the interests of the beneficiaries are considered, the assets of the trust are protected for those beneficiaries, and the trust is running correctly.
Why Should you Have a Professional Trustee?
It is important to remember that trusts are set up for a variety of reasons such as protection against means testing (eg: aged care fees), a defence mechanism from property relationship claims, and for asset protection.
However, a trust will only protect assets if the trustees carry out their functions correctly: This includes administering a trust properly. If trustees don’t meet their duties, allegations can be made that the trust is a sham and if those allegations are substantiated, asset protection can be lost. Ultimately, this can result in the trust assets being made available to satisfy claims, for example claims by creditors.
As noted above, professional trustees assist other trustees by ensuring all of them meet their legal duties and responsibilities. For instance, a professional trustee can make certain the trustees meet regularly and record all the transactions the trust undertakes.
Additionally, the presence of a professional trustee who does their job right can demonstrate that the trust is real. Assuming the professional trustee carries out their functions properly, the chances of a successful allegation of sham trust should be minimised.
Professional trustee fees
Professional trustees usually charge fees, on the basis of holding the position of trustee. It is a small amount of money for the security received. For more information on our Professional Trustee fees, please contact us.
Professional trustees will take out insurance policies in respect of their functions and there is a cost to this. Also, professional trustees may charge for the work they do on behalf of their co-trustees and on behalf of the trust.
For example, a professional trustee can charge a fee for preparing minutes and executing documents.
Recently, in a couple of cases, the courts favoured the appointment of professional trustees. These cases showed that having a professional trustee gave credence to the existence of the trusts and the transactions undertaken by the trusts. So, despite the fees that may be charged, serious consideration should be given to appointing a professional trustee.
So in Summary:
Having a professional trustee is not legally necessary, but it can be an enormous advantage. Professional trustees are usually well acquainted with trustee duties and what action has to be taken to satisfy those legal responsibilities.
By a professional trustee assisting in all trustees meeting their obligations, such as having meetings, making decisions, looking after trust assets and correctly documenting and administering trust affairs, the chances of successful allegations of sham trust are decreased.
Whilst a mechanic isn’t legally required to carry out all car repairs, most people want to ensure their car is safe and so usually have a mechanic do repairs.
Not using a mechanic might save a few dollars but ultimately, could result in some nasty consequences. Having a professional trustee who carries out their functions is much the same – the benefits can far out weight any costs involved.
Individual trustees are often busy people, leaving little time to administer the trust under their control.
Additionally, just like many of us don’t know how a car engine works and wouldn’t know how to carry out car repairs, many people don’t know how to meet their trustee duties and how to administer a trust.
Remember, trustees are personally liable to all the beneficiaries of a trust and unfortunately, ignorance of their duties is no excuse in the eyes of the law.
Thus, DIY trust administration practice is not dissimilar to undertaking car repairs – savings on professional trustee fees may seem a great idea initially but those savings can be outweighed by the costs faced when a trust structure fails through DIY practice. Cheap can be expensive in the long run.
We have now just completed the end of the financial year and this is an ideal time for trustees to ensure trust administration has been done correctly.
It is also a good time to consider whether appointing a professional trustee is warranted.
Check out our Family Trust as well as our Professional Trustee section of this website for more information, or if you have a question or would like to speak us, please contact us now. We’re here to help.
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth. GRA are accountants who provide expert accountant advice both in NZ and offshore.
P.P.S. Check out our sister website, www.familytrusts.co.nz for more family trust information.
Family Trust Gifting: The Dangers
Hello Everyone,
This week I had an interesting conversation with two individuals who had received some really poor advice from their advisors. This advice has cost them dearly in terms of the assets they are about to lose.
But the rot doesn’t stop there as the loss of their assets will have a long term effect – it will most definitely deprive their children of their inheritance.
[By the way the lessons from this story will be covered in my next upcoming Auckland seminar entitled "Family Trusts Tips & Traps" ].
The story goes something like this …
Mr and Mrs Smith were offered a business opportunity which they decide to take up. Before they did so, they approach their advisor who told them to set up a Trust and move their family home into the Trust. This would of course bestow asset protection upon the home the Smith’s were told. And the Smiths being sensible individuals relied on that advice.
A Trust was duly set up and the Smiths sold their family home to that Trust. Because the Trust did not have any money to pay the Smiths for the home, the Trustees gave the Smiths an IOU – a Deed of Acknowledgment of Debt in legal speak.
At this point the first error was committed. There was no Hawkins or Entrenchment clauses in the IOU and we all know what that means. Just in case you don’t however, don’t worry. We are going to tell you because this would be one of the largest mistakes we see when Trusts are set up and IOU’s are given out.
The Smiths were then told to enter into a gifting programme and to forgive $27,000 of the debt each and every year that was owed to them by the Trust. Again, the Smiths being the sensible individuals they were, relied on that advice. They were also under the impression that their advisor would take care of preparing the gifting documents for them on an annual basis. After all, it was the advisors job to do this.
At this point the second error was committed. The advisor didn’t run a computerised gifting programme. That advisor simply ran a paper spreadsheet. Unfortunately, the other member of their staff, who was also responsible for completing Trust work, also ran a manual paper spreadsheet. Neither the advisor nor the staff member had regular Trust Department meetings so neither of the spreadsheets were ever checked to ensure that all clients actually got put on to a spreadsheet. Truly a recipe for disaster!!! As it turns out, clients gifting was often missed because they were never noted on either of the manual spreadsheets.
If the above two errors weren’t bad enough a third error was committed. It was this error that was truly fatal for the Smiths.
The Smiths business venture was really going well so they decided to sell their house and get a bigger one. This did mean they would have to take on a bigger mortgage but because the business was prospering, the thought of a larger loan didn’t bother them. So they instructed their advisor to attend to the conveyancing of the property. Once the house was sold, the sale proceeds were placed in the Smith’s personal bank account. We all know the danger of this, but just in case you don’t worry. We will tell you and we’ll do this because this is another very, very common mistake we see.
After the house was sold, another business opportunity came up in connection with their existing business. This opportunity however would require the Smiths to move overseas for a couple of years. They decided to take up this new business venture, so delayed buying another house. They were unsure about what they should do with their Trust so they called their advisor.
The advisor told the Smiths to put the sale proceeds they got from their home on term deposit and that there wasn’t any further need to gift as they were now heading overseas. Therein lies the nail in the Smiths coffin unfortunately but the Smiths, holding the view that their advisor knew what he was talking about, relied on that advice. They did indeed put the sale proceeds in a term deposit account held in their personal names and they did indeed stop their gifting programme.
All went well in the lives of the Smiths for about two years. But then the market turned. Their business overseas went into liquidation. They returned to New Zealand to find the manager they had left in charge was not coping and to make matters worse, the market in New Zealand had also changed. What was once a profitable business, was now in the red. Rather than producing money each and every month, all it produced was more debt.
The New Zealand business duly went into liquidation, leaving a sizeable debt owed to the Bank. At the time when the Smiths originally purchased their New Zealand business they gave a personal guarantee to the Bank. But don’t worry – the Bank got paid in full!!! How? Easy. The sale proceeds on term deposit were held in the individuals personal names so the Bank simply applied the guarantee against those proceeds and took them, crediting those monies against the monies the New Zealand business owed them. We’ve told everybody for years how to handle the Banks. Don’t worry if you are unsure about this point. We’ll gladly tell you because this is probably one of the largest traps people fall into.
How could all of this been avoided? What does this have to do with stopping the gifting programme? How do you handle the Banks?
To find out the answers to these questions and the ones we’ve highlighted above, simply come to my next seminar called “Family Trusts Tips and Traps”.
Go on - Register Now. It could save your assets – even if you don’t go into business!!!
All the best, Janet.
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and get tips, updates and useful information to help you protect your assets and grow your net worth.
