family trusts
Family Trust Experts
Matthew Gilligan, CPA
Matthew Gilligan is a Chartered Accountant and has been practising for 16 years as a Director of Gilligan Rowe & Associates Limited (“GRA”), the Family Trust experts. He began the practice in 1992 and it has grown exponentially in staff and services offered from its inception. His co-Directors are John Rowe and Janet Xuccoa.
GRA is a Chartered Accounting practice, specializing in property and tax structures, business consultancy and advisory services, and preparation of financial accounting information for individual clients, family and owner managed businesses and company clients. The firm also offers a complete range of traditional chartered accountancy services.
Matthew’s Division specializes in an asset planning process which involves designing asset ownership structures to deal with protecting assets, estate planning and tax minimization goals collectively. Matthew has been involved in asset planning and property market for over 16 years.
Matthew is a well known speaker on asset planning and property matters. He presents annually at Thrive Auckland and Thrive Waikato. He also speaks to various Property Investor Association groups, Chambers of Commerce, Retailers Associations, Builders Association amongst other groups in society.
Contact Matthew:
matthew@familytrusts.co.nz
___________________________________________________________
Janet Xuccoa, BCom LLB
Janet is a director and shareholder in Gilligan Rowe & Associates Ltd. She holds an accounting degree and a law degree and has gained much knowledge and experience from working in New Zealand law and accounting firms.
Janet is a well known author on trustee matters and has written numerous articles for different publications including the New Zealand Property magazine. Currently, she writes for Business to Business Newspaper, Essentially Home Magazine, Mothers On Line and Squirrel. She is also completing a book with Matthew Gilligan and John Rowe which is intended to be published 2009.
Janet is a renowned speaker and presents at seminars held by Property Groups, Chambers of Commerce, Retailers Associations, Women’s Groups, Banking Institutions, Home Shows, Mortgage Brokers and Management Organisations. She has also presented at Thrive Auckland and Thrive Wellington, the biggest business events held in New Zealand.
At Gilligan Rowe & Associates Ltd Janet leads the Professional Trustee and Estate Planning division, assisting Trustees and Directors to comply with their duties, ensuring Trusts and Companies are operated efficiently and lawfully. She is also responsible for marketing within the firm.
Through the expertise Janet possesses, she is able to assist clients develop and maintain effective structures to purchase property, conduct business activities and protect their assets.
Contact Janet:
janet@familytrusts.co.nz
_______________________________________________________________
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director Family Trust expert and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955.
Family Trusts & John Key
John Key - An Advocate of Family Trusts?
The trouble with being in the wrong place at the wrong time is you hear things which you have absolutely no right to hear and even less right to comment on. That unfortunately happened to me last week – twice!!!
The first conversation occurred between what is probably considered amongst the legal profession as two leading lights in their respective fields. For confidentiality sake and because I am not partial to being sued, I’ve changed a couple of the details but in the main the conversation went something like this:
“Hello Pete, I was hoping I’d find you here”.
“James, how nice to see you. Been meaning to call – got buried in the ABC Case”.
“Ummm. Heard about that. Nice win.”
“Thanks.”
“Pete, I want to talk to you about Mary Smith – you know the file I sent you a couple of weeks ago.”
“Yes … I’ve read the file. James, I just can’t see this case being a winner. Mary Smith took absolutely no legal advice before investing in that finance company. Although thats a bit of an oxormoran – investments companies are meant to help you grow your money not lose it.”
“I know that Pete. And the Company is in liquidation. But perhaps we can sue the Director.”
“And what exactly is that going to do? All his assets are in Trusts. Been there for years. And hes got a Professional Trustee who I know. They would have made sure those Trusts are run right. Doubt we’d be able to bust the Trusts.”
“Not right Pete.”
“I know but there it is. Now how about a game on Sunday ….”
In this instance, I felt like being swallowed up by the large bookcase I was standing behind. I knew the truth in the conversation I had just heard. The Trusts had been set up years and years ago. The Professional Trustee would have taken all steps to run the Trusts right which meant there wasn’t much chance of a successful Trust bust. Not that it seemed it was going to even come near to that. If Pete wasn’t going to take the case, I doubt there’d be any other good litigator wanting to have a go.
My day of being in the wrong place at the wrong time, didn’t stop there. In the afternoon I was at my Doctors, sitting patiently in the waiting room. It’s not called a waiting room for nothing. Every time I go to the doctor, I have to wait. Patiently. So as you do when bored, you take notice of your fellow human beings and what they are talking about. This conversation that I overheard I didn’t feel too bad about. After all, we were in a public place. But I desperately wanted to say something. Which I couldn’t. Butting in would have been just plain rude. Here’s a bit of a replay of the conversation. Again, because Auckland’s a small town, I’ve changed some of the details.
‘Jane’s going to lose everything. And Patrick’s left her.”
“Thats bad. Is it over XXXXX Company?”
“Ummm. They mortgaged their own home to invest. Now they’ve got to sell their place. She’s so upset. I’m quite worried about her. Lost a lot of weight.”
“The papers say it all XXXX’s fault. He knew the company was in trouble. But he doesn’t care. His house is in Trust. I know cause my sister cleans for them.”
“If National gets in, they’ll do something about that. John Key won’t let people hide behind Familt Trusts. I think he’ll do away with them.”
“That’d be good. It’s not fair that they get to keep their BMW’s whilst everyone else loses their home”
At this point the conversation ended as one of the women was called in by her doctor. Lucky her. Her waiting time was over. Patience. Patience. Patience.
That night, over a tall glass of vodka and orange, with no ice, I mused on both conversations.
Was having a Trust such a bad thing? Was having a Professional Trustee wrong? Did only dodgy people set up Trusts? Would John Key pass legislation to abolish Trusts?
My clients set up Trusts for loads of different reasons. Asset protection was one of them. But then what’s wrong with wanting to protect what’s yours. After all, most of us work hard enough for it. And it was true that I did help people run their Trusts. But that was my job as a Professional Trustee. Not much point in having a Trust if it wasn’t run right.
The majority of my clients weren’t dodgy people. They were ordinary mums and dads who wanted to look after their assets for their families’ sake. Some of them were in business for themselves. But they were good businesspeople, trying to make an honest living, not trying to scam other people out of their homes.
Besides I thought, putting assets into a Trust wasn’t the issue. It was how those ‘dodgy people’ ran their lives and their companies that caused damage. Having a trust to hold their assets had nothing to do with it. And as for John Key. Well I just couldn’t see it somehow. Looking at his background, work history and his campaign slogans, I reckoned John Key would be an advocate of Trusts.
Key was a man who came from a state housing background. Which meant of course he had a pretty good idea of how average New Zealand lived. He’d worked for a Bank in the finance sector so he’d be use to seeing Trusts around. And during his campaign he espoused the view that NZ could do economically better.
Seemed to me, Key believed in building up wealth, assets and economic reserves. And what better place to do that than in a Trust where assets were protected now and for future generations. Now he’d won the election, he was facing a tough challenge, coming to power in times of financial turmoil. Equity markets and credit markets were in deep disarray. Liquidly in the banking sector was a bit of a problem. Yep he had his work cut out alright
And he was going to need good people around him to help make NZ ‘economically better.’ The people on his team would probably be like him. They would be at the top of their game. Undoubtedly, they would have already built their wealth and would be willing to lend a hand to help the country build hers. And those people would surely have their assets in Trusts. After all, Trusts help protect and build assets. So my little grey cells brought me to the conclusion that Key wouldn’t be striking down Trusts - if he did, he’d strike at the very heart of the people who were going to help him get his job done.
Too much thinking. Clearly, there was no better time than right now to have assets in Family Trusts. That decided, I thought another vodka and orange was in order …
Janet Xuccoa
All the best,
Janet Xuccoa, BCom LLB
Trustee Services Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates Ltd
Learn more about Janet
_________________________________________________
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955. .
Why Family Trusts Need Their Own Bank Account
Family Trusts and Bank Accounts
Frequently, Trustees have to consider whether they should open a bank account for the Trust. This consideration usually arises when a Family Trust either receives funds or the Trust has to make a payment.
My view is that a bank account should be opened when the need exists for such an account. So, if the Trust is going to receive funds or pay out funds, then a bank account is necessary. Hence, if a Trust hold shares and will be receiving dividends, then those dividends will belong to the Trust and hence should be banked into the Trust’s bank account. Correspondingly, if a Trust is going to incur expenses, such as having to pay for a new roof of the home that it owns, these expenses should be paid out of the Trust’s bank account.
- The reason why I hold this view is that Trustees have two particular duties. The first duty is to ensure monies belonging to the Trust do not get mixed up with Trustees’ funds. Clearly, having a bank account for the Trust where funds are paid in and paid out assists in meeting this duty.
- The second duty is that Trustees must be able to account to Beneficiaries for the administration of the Trust.
Having a separate bank account and keeping copies of all the Trust’s bank statements showing all the transactions undertaken by the Trustees is of enormous help in satisfying this duty. Remember however, those transactions will need to be recorded in Minutes and financial accounts based on the information contained in the Bank statements will need to be completed.
Janet Xuccoa
All the best,
Janet Xuccoa BCom LLB
Trust Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates Ltd
Learn more about Janet
_________________________________________________
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955 .
Family Trusts & Estate Planning
When a Family Trust is established it is important to note that it usually runs for a period of up to eighty years. In most cases, this means the Trust will outlive the people that set it up.
This of course is part of the intention of establishing the Trust in that it is often seen as the cornerstone of an estate plan whereby individuals pass their assets onto children and chosen beneficiaries.
This means that in conjunction with the Trust, it is critical that you also execute new Wills and a Memorandum of Wishes for the Trust.
Wills need to be prepared at the time that a Trust is established because Wills deal with your personal assets. Once you have a Trust (that you intend to own many of your private assets) your Wills need to be redrafted to reflect this.
Principally your Wills should now direct your assets into the Family Trust on death so that they are not part of your estate and do not pass to your children or chosen beneficiaries personally.
You will often also find that your Trust Deed reserves certain powers for you including the power to appoint and remove Trustees and gives you the ability to name who you would like to succeed you in holding these powers in your Will.
Janet Xuccoa
All the best,
Janet Xuccoa BCom LLB
Trust Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates Ltd
Learn more about Janet
_________________________________________________
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955.
Who Wants to Lose Their Assets?
Imagine the excitement. You have worked, saved and hunted hard. Finally, you have found a home perfect for you. Moving day arrives and you and your possession make their way to your new castle. Over the next coming months, you plan the alterations you want to make and the things you want to buy to make your new abode your private haven.
Lots of energy goes into this planning – after all, buying your home and making it your personal sanctuary is probably going to be one of the biggest decisions you make in your life time. It’s also likely to be the one of the biggest investments you are going to make. So have you done all you can to protect this investment?
Losing The Family Home
Risk surrounds us. It comes from the business dealings we enter into. It can arise from the actions our spouses and children commit. It can even come about from the events we engage in. And when these ‘left wing’ events occur, it is often irrelevant in the eyes of the law whether a person meant to bring about the harm that has been done. An intention not to commit the event won’t mean a person isn’t found guilty. Nor will it mean their assets are safe.
Family Trusts: Taking Protection
Because of the risk people face, it is important for assets to be protected. For this reason, many people use a family trust to hold their assets such as a family home. Simply putting your home in a family trust however is not enough. The documentation that is associated with transferring the home to the Trust must have integrity and contain appropriate clauses to ensure full protection is had.
Let us take the example of Mr and Mrs Smith selling their home to the Smith Family Trust. Initially, they and the Trustees of Family Trust with sign an Agreement for Sale and Purchase. The Agreement should contain a couple of important clauses including reference to the fact that the purchase price for the home will be paid by the Trustees by them entering into an IOU, often referred to as Deed of Acknowledgement of Debt.
Family Trusts Documentation: Getting it Right
Often when people sell their home to a Family Trust, the Trust won’t actually have the money to pay for it. So in place of the money and to avoid paying gift duty, the Trustees and the owners enter into a Deed of Acknowledgment of Debt. The Deed will record the amount of money owed by the Trust for the purchase of the home. In certain circumstances, you can be made by judgement creditors and the Official Assignee, to call in the IOU. To assist in protecting against this, certain clauses should be contained in the Deed of Acknowledgement of Debt.
So, let us assume Mr and Mrs Smith have sold their home and have a Deed of Acknowledgement of Debt from the Trustees of the Family Trust. Let us also assume that Mr Smith incurs a large business debt which, for no fault of his own, he is unable to pay. Feeling annoyed at not being paid, Mr Smith’s creditor goes to Court and sues him for the money he is owed. Mr Smith claims he has no assets to pay the debt with and the creditor is left to find a way to get his money. After doing some checking, the creditor finds the Trust has purchased a home from Mr Smith and has given Mr Smith a Deed of Acknowledgement of Debt (eg: an IOU) . The creditor would likely then force Mr Smith to ask the Trust for repayment of that IOU. Why would the creditor want to do this? Because, if the Trust repays the debt it owes to Mr Smith it means he will have the money to pay the creditor! To repay the debt to Mr Smith, the Trust will likely have to sell some of its assets, such as the family home, and thus the Trust ends up providing no protection at all. All of this can however be avoided if appropriate clauses are put into the Deed of Acknowledgement of Debt.
Family Trusts: Conclusion
In summary, Trusts are a useful and successful means of protecting assets. Anyone purchasing a substantial asset, such as a family home, needs to seriously consider taking protection. After all, you wouldn’t buy a car without insuring it would you? So why spend even more money on a home without doing all you can to protect it? You have to remember however that simply putting your family home into a Trust without having the right documentation won’t offer much protection at all. So if you are
Janet Xuccoa
going to get ‘covered’ ensure the documentation is correct. Do it right the first time.
All the best,
Janet Xuccoa BCom LLB
Trust Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates
Learn more about Janet
_________________________________________________
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955.
Sham Family Trusts & How To Avoid Them
Sham Trusts
In previous articles we discussed why business owners should use Trusts and in particular, the importance and value of placing personal assets in a Trust so that those assets were protected. Unfortunately, most people think that once assets are placed in a Trust they are protected forever! However, this is simply not the case. If a Trust is found to be a “sham”, then asset protection can be lost.
So what is a Sham Trust? The concept of Sham Trust has evolved over time but for our purposes, it can be thought of as something that isn’t genuine, a disguise or a façade.
Professional Trustees often ‘rescue’ a Trust from the sham stigma. They do this by faithfully and properly carrying out the work of being a Professional Trustee. This means they review the activities of the Trust and ensure that all administration work has been correctly carried out. Why is this so important? Trustees have a legal duty to discuss, agree and document the activities the Trust is undertaking. When this doesn’t occur, the door is opened for a creditor or even a beneficiary to allege that the Trust is a sham, and if the allegation is successful, asset protection can be lost and the trust assets can be “up for grabs”.
Sometimes a Trust can be a sham at its very beginning. This occurs when Settlors and Trustees create a trust and transfer assets to the Trust, but in reality never intend for the Trust to do anything or to operate properly. Usually, what is really happening is that the Trust has been set up to conceal the real intentions of the parties or to conceal a transaction.
A common type of Sham Trust we see today is called an Emerging Sham. This is where a genuine Trust is established but it becomes a sham over time. For example, the Trustees start out practicing good behaviour, but then stop meeting, discussing and documenting what activities they will undertake on behalf of the Trust. What then happens is that records documenting Trustee discussions or decisions are not kept and frequently, the Settlor starts to treat the Trust assets as if they were his very own property. A regular example of this is where the Settlor withdraws money from the Trust’s bank account for his own personal use (or worse, for someone else’s use) without the agreement of his fellow Trustees or without documentation. It’s important to note however that a lack of documentation won’t of itself make a Trust a sham, but it does assist a Court in finding that a sham exist.
The Consequences of Discovering a Sham Trust
As noted above, when a Trust is found to be a sham, loss of asset protection can result. Take the case of Prime v Hardie. This case involved a Trust which had two Trustees being a husband and his friend. The Trust held a property, which the wife, the husband and their two children lived in.
The husband decided that he wanted to leave his wife but did not want to share any assets, including the Trust’s property, which he viewed as being his own. After much trickery, the husband persuaded his wife to move out of the home and temporarily into a motel with their children and to rent out the house to an unrelated third party. Once this had occurred, the husband told his wife he was leaving her and that she couldn’t go back to the house as the house had been rented out by the Trustees.
When this matter when to Court it was found the Trust was effectively the husband’s ‘altered ego’. In New Zealand the terms ‘sham trust‘ or ‘constructive trust’ are far more common. The Court made this decision because the husband had to a large extent treated the assets of the Trust (eg: the home) as if it were his own and the Trustees had not acted in the best interests of the Beneficiaries.
Another consequence of a Sham Trust finding is that Trustees can become personally liable for the losses the Trust and its Beneficiaries incur. This is because Trustees are charged personally with meeting their legal duties. At law, Trustees enjoy a right of indemnity to be reimbursed from the Trust fund for all costs and expenses reasonably incurred in undertaking their duties however this right can be lost if Trustees don’t meet their duties. When this occurs, Trustees may have to sell their own assets to meet the loss. This is a very important consequence to consider when family and friends ask you to be the Trustee of their Trust.
Lastly, adverse taxation consequences, including tainting and large differences in tax liabilities arising from the differences between the way Trusts and individuals get taxed, can result. This is especially important if a Trust is receiving income such as in the case of trading Trusts.
Sham Trusts: How to Avoid Them
If Trustees follow these rules successfully sustaining an allegation of a Sham Trust becomes more difficult:
- Be acquainted with the purpose and terms of the Trust and adhere to that purpose and those terms;
- Have regular meetings to review the assets and liabilities of the Trust and to ensure those assets are appropriate to meet the purpose for which the Trust was created;
- Act diligently and prudently when dealing with Trust assets;
- Don’t treat Trust property as if its your own personal property;
- Discuss and record the activities the Trust is intending to take and the decisions of the Trustees;
- Obtain professional advice where needed; and
- Decide and appoint a Professional Trustee.
Sham Trusts: Conclusion
Ensuring a Trust structure is strong rests with the Trustees of the Trust. If Trustees follow the above rules, attacking a Trust and successfully substantiating an allegation of Sham Trust becomes more difficult. Additionally, appointing an Independent Professional Trustee who does their job can demonstrate that the Trust is real and should decrease the chances of a successful allegation of Sham Trust. Recently, in a couple of cases, the Courts have favoured the appointment of Professional
Janet Xuccoa
Trustees so serious consideration should be given as to whether a Professional Trustees should be appointed.
Janet Xuccoa BCom LLB
Trust Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates
——————————————————————————–
More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955.
