In the midst of writing financial plan for a family trust (as both trustee and beneficiary), it is an important topic. I'm unclear who writes these things, but an essential part of running a trust. As is not uncommon, the plan has to deal with demands on both assets for capital growth (younger beneficiaries) and yield (older beneficiaries), and may provide a bit of a nexus for a strategy. Plan until now has been set for capital growth, basically consolidation. But then debt came along, which is like investing someone else's money twice, once on property and then with interest-only terms, use of the money for investment. Dealing with debt great for capital growth, but poor for yield (needed within ten years). There will be a crossover (somewhere), between max growth for min debt. Accountant said reduce by 50% in five years.
Feeling a bit isolated, so reaching out for comments on dealing with this topic.
Financial plan for family trust
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02-09-2021, 10:03 AMFred114Financial plan for family trust
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02-09-2021, 11:03 AMstoplossEngage a good lawyer to help with the Trust deed.Quote:
Originally Posted by Fred114
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02-09-2021, 12:02 PMfungus puddingFirst - find out if there is likely to be any benefit to you in a family trust.Quote:
Originally Posted by stoploss
You need to find the right lawyer to help you answer that.
Very ofen they are more trouble than they are worth.
Most people probably don't need one - but whatever you do, have a will and review it periodically. -
02-09-2021, 01:59 PMFred114
Judging from the replies, I might have given the wrong impression. The trust have been in existence for years, basically as a result of buying into an existing business. The query I had is about a financial plan for the trust, and has been a useful exercise in the past to set out a direction and understanding for trustees. The deed would not normally be reviewed in that circumstance, or involve a lawyer.
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02-09-2021, 05:51 PMFTGFred, to have any chance of giving you any meaningful opinion, we first need to understand the situation better. Following are some questions for you.Quote:
Originally Posted by Fred114
- Confirming this is a Family Trust (not a Trading Trust)?
- Presumably it currently holds a variety of assets and investments? (not just a family home)?
- When was the Trust originally settled? and who originally attended to that, e.g. Lawyer, Public Trust
- You are a Trustee and a named beneficiary on the Trust Deed?
- Are there other named beneficiaries ?
- Or perhaps this is a "Discretionary Trust", so there are no specifically named Beneficiaries?
- Are there other Trustees, including a "Professional trustee"?
- The Settlor is a family member and related to you?
- How familiar are you with the Trusts Act 2019, and all the various associated rights & responsibilities you have as a Trustee and as a Beneficiary? -
02-09-2021, 09:41 PMSBQ
I've found sooner or later I may have to form a family trust in NZ. How they say, "A necessary evil" if we look to move back to Canada.
FTG questions are very important. Over the past year i've witness a family feud based around the formation of a Family Trust. Some background info, before my uncle died he placed their home into a trust only because the lawyers at the time said they required it when the large parcel of land was to be sub-divided in 4 ways. He went by the advice of the lawyers despite his wife objecting. The lawyers did not give an alternative as they would not leave each member of the party at risk by not having separate trusts formed. Anyways he passed away 2 years later and boy did their trust cause some major issues. One of the beneficiaries wanted to dissolve the trust but the lawyer that set it up said there was no unanimous decision. The 1 other beneficiary refused to sign the document. Then the lawyer struck the trust as non-standing or in layman terms, a massive rift in the party had formed. He advised each beneficiary must find a new trustee to represent them in the trust. When 2 attempts from different people in each side of the party had failed, the lawyer was forced to hand the trust over to Public Trust. Now under a different administration, the public trust has to obliged with the will and 'memorandum of wishes' set out when the trust was formed. By the way, the 1 beneficiary that tried to dissolve the trust incurred legal fees in excess of $16K, all at the end having the trust end up in the hands of Public Trust administration. As we speak, they are trying to sell the house and they realise the funds have to go back into the trust account. From there I don't know what will happen after if all parties will agree to dissolve the trust.
Just saying that there are major problems when operating a trust, if all parties are not on the same page. This is the biggest thing that scares me the most and the lawyers make a lot of $ out of this stuff. Don't ask the advice of an accountant. Seek someone trustworthy, a close friend or family that can recommend a good lawyer. Even then, it's been mentioned before that the family trust today serves little for the average family. It no longer offers the same protection as it use to (hence repeated changes of the Trust Act = 2019). -
03-09-2021, 09:20 AMFred114
Fred, to have any chance of giving you any meaningful opinion, we first need to understand the situation better. Following are some questions for you.
- Confirming this is a Family Trust (not a Trading Trust)? Correct, and set up to protect liability, should that arise, against a claim of conducting business in the construction sector, a very common reason for setting up a trust.
- Presumably it currently holds a variety of assets and investments? (not just a family home)? Trust holds a variety of assets, business shares, two investment properties mortgaged to ANZ, family home, Cash assets (seven figures).
- When was the Trust originally settled? and who originally attended to that? 2015, Lawyer
- You are a Trustee and a named beneficiary on the Trust Deed? Correct
- Are there other named beneficiaries ? 2x descendant children, wife and I
- Or perhaps this is a "Discretionary Trust", so there are no specifically named Beneficiaries? No
- Are there other Trustees, including a "Professional trustee"? No
- The Settlor is a family member and related to you? Wife and I named as the settlor on the deed.
- How familiar are you with the Trusts Act 2019, and all the various associated rights & responsibilities you have as a Trustee and as a Beneficiary? Trying to get familiar.
I've answered these questions for context, but don't quite see their importance for an opinion for a financial plan. There are future (within ten years) competing demands on the trust broadly, that younger beneficiaries would want a lump sum to purchase a house, and older beneficiaries would prefer yield-producing assets, as a source of income. The treatment of debt by the trust will have a bearing on the provision of each demand, described in the first post of the thread.
Hope that helps. -
03-09-2021, 12:54 PMpeat
so its actually got little to do with the Trust because usually the fine points of those are in the Deed or The Memorandum
So if you were to go professional it would be a Financial Planner.
However you're presumably going to do it yourself.
In which case work through some asset allocation percentages using standard FP principles (adjusted as you consider) If you dont know what the ranges here would be I could provide something to work off.
Then work through the expected returns on those and compare those to the 'requirements'.
But , Perhaps you dont need to consider the return on the assets themselves just their appropriate percentage in the risk based allocation and then pay the income required out of the cash as it seems there is a good pool
The trust will grow as per its own income and capital gains ,or shrink if the income paid to the beneficiaries is too great but would I be right in suggesting thats unlikely. -
03-09-2021, 03:41 PMFred114asset allocation, yes I’d overlooked that, partly because I don’t normally apply.Quote:
Originally Posted by peat
yes, if you could provide something to work off that would be good. -
03-09-2021, 04:18 PMpeatso that depends on the risk you want to acceptQuote:
Originally Posted by Fred114
think of all your assets as a big kiwi saver fund. Are you going to position them at the conservative end or the growth end.
that determines the percentage of assets you allocate to any of the main groups. Those groups being Cash, NZ Income, NZ Equity, Int'l equity, Int'l Income, and finally Property. And then you choose what vehicle you will use for those groups. eg which bank for the Cash and TD's which fund for the NZ Income (or buy a judicious mix of TD's and Bonds) which fund for the NZ equities (unless you want to go right down into the company investment level of course) , , and what properties or funds to represent the property assets (probably well represented already but that becomes all part of the portfolio).
Cash might represent eg 3% of the portfolio in a growth situation or say even 7-10% in a very conservative one.
NZ Equities might represent 25% for growth and or down to 10% for conservative one etc etc.
NZ Income 7-70
Int'l Equities 50 - 12
Property does have risk so shouldnt be more than 15% even in a growth portfolio but I wouldnt be surprised if this part of the portfolio is somewhat illiquid and fixed.
I hope you get the general idea
You could get a planner to do it for you with a big spreadsheet and a fancy report. He would test your appetite for risk and then decide on the asset allocation (if you were doing it as an individual). As a trust it should probably be run quite conservatively. but as settlor trustee and beneficiary you will either have views on risk or will need to form them to create a plan.
So its
1/ Risk determination
2/ Asset allocation
3/ Vehicles for assets -
03-09-2021, 04:25 PMWaikaka
I am involved in some trust administration with my family
Important to note that Trustees can be held liable by beneficiaries if investment go pear shaped and they feel they have missed out. This should drive some pretty conservative investment behavior.
To avoid conflicts mine is professionally managed with corporate trustee and investment advisor but I keep an eye to make sure nothing too strange is going on.
Apologies for the detail but may be helpful if you go it alone.
Break down is like this:
International Equities Fund 30.22%
New Zealand Bonds Fund 17.23%
Property and Infrastructure Fund 14.66%
New Zealand Equities Fund 13.21%
Australian Equities Fund 12.90%
International Bonds Fund 6.93%
Net Cash 4.85%
Total 100.00%
NZX is:
Fisher & Paykel Healthcare Corp Ltd 18.23%
Auckland International Airport 9.67%
Spark New Zealand Limited (NZ Registered) 8.17%
Meridian Energy 6.80%
The a2 Milk Company Ltd 6.31%
Ryman Healthcare Limited 6.03%
Fletcher Building Ltd (NZ Registry) 5.75%
Infratil Limited 5.07%
Contact Energy Ltd 4.96%
Mercury NZ Limited 4.36%
Chorus Ltd 3.12%
Sky City Entertainment Group Limited 2.61%
Summerset Group Holdings Limited 2.60%
Goodman Property Trust 2.48%
Kiwi Property Group Limited 1.92%
Pushpay Holdings Limited 1.92%
Precinct Properties New Zealand Limited 1.79%
Genesis Energy 1.79%
Z Energy Ltd 1.45%
Argosy Property Ltd 1.18%
Air New Zealand Ltd 0.94%
Oceania Healthcare Limited 0.79%
Restaurant Brands New Zealand Limited 0.41%
Synlait Milk Limited 0.33%
Napier Port Holdings 0.30%
Net Cash 1.02%
Total 100.00%
Bonds
Westpac 17.37%
ASB Bank 15.98%
NZ Local Government Funding Agency 15.50%
Bank of New Zealand 13.01%
ANZ Bank 7.89%
NZ Government 7.32%
Cash 5.43%
Auckland International Airport 5.04%
Auckland City Council 2.99%
Transpower 2.87%
Kiwibank 2.86%
Toyota Finance NZ Ltd 2.52%
Housing NZ 1.23%
Total 100.00%
Pretty much all ASX is in the
Top 25 Securities Weight %
Commonwealth Bank of Australia 10.00%
BHP Group Ltd (AU register) 8.73%
CSL Limited 7.89%
Westpac Banking Corporation (AU Register) 5.77%
National Australia Bank Limited (AU Register) 5.60%
ANZ Bank (AU Register) 5.24%
Wesfarmers Ltd 3.91%
Macquarie Group Limited 3.44%
Woolworths Limited 3.38%
Rio Tinto (AU Register) 2.69%
Transurban Group Stapled 2.39%
Fortescue Metals Group LTD 2.22%
Goodman Group Stapled 1.97%
Woodside Petroleum 1.51%
Afterpay Limited ORD 1.42%
Coles Group Limited 1.40%
Newcrest Mining 1.30%
Aristocrat Leisure Limited 1.29%
James Hardie Industries PLC Cdi 1:1 1.15%
Sonic Healthcare Limited 1.04%
Brambles 1.02%
Xero Limited (Australian Exchange) 1.01%
Scentre Group Stapled 0.96%
Telstra Corporation Ltd (AU register) 0.93%
QBE Insurance Group Limited 0.92%
Top 25 Total 77.18%
US/international equities are in ETFs. -
03-09-2021, 04:46 PMFTGQuote:
Originally Posted by Fred114
Thanks Fred,
Quite helpful in getting some sense of where your Trust sits on the continuum of "Trust sophistication & needs".
As you know, the foundational purpose of having a Trust is that the Settlor(s) wish to protect the assets belonging to the Trust.
Relative to other countries, NZ has a high number of Trusts (circa 400,000). As an aside, one of the reasons for that is that back in a day people were primarily using Trusts as a tool to navigate 'tax planning issues' (e.g. Estate Taxes, Gift Duties). In more recent years a more significant motivation for the formation of Trusts has been navigating the PRA (Property Relationships Act). Basically attempting to protect the assets of the Trust from current or future partners of the Settlor and/or Beneficiaries.
Considering the breadth & depth of assets held in your Trust, I think it is great that you are putting together a financial plan! In fact, I would go as far as suggesting, as a Trustee it is imperative that you do so. Many of those 400,000 NZ Trusts (of which many just hold the family home) are currently being rather "loosely" governed & administered. Under the provisions called for in the Trusts Act 2019, at some point many are going to be caught wanting. If a Trust is not structurally correct or is governed poorly then the chances of a Trust being deemed as a sham and hence exposing the assets are much higher. For many people (specifically the Settlors) the new compliance requirements & associated ongoing costs should raise the question to whether having a Trust is still the best approach going forward.
Sorry, I have digressed a little. You wanted comment on how best to put together the financial plan for the Trust. Following are some quickfire points of comment for you to consider. I apologise for any brevity. Getting into specifics on this forum is not appropriate, but feel free to PM me if you wish.
- I would suggest that you do seek some legal advice. Ideally from a Lawyer who specialises in Trust Law. This advice would include reviewing the current Trust Deed and current structure of the Trust. Is it "fit for purpose", especially in the context of the 2019 Act now in play? Once those affairs are in order any financial plan will be more nuanced & aligned to ideal long term objectives.
- As you have business & income producing assets in the Trust, it's best to continue getting Accounting & Tax advice from your good(?) Accountant. Ideally that Accountant will have full visibility of the entire historical & current financial affairs of the Trust, you & your wife, and the associated business interests. A good Accountant will also have sufficiently up-skilled on matters relating to the Trusts Act 2019.
- But, keep in mind that the Accountant isn't a Lawyer!
- And... the Lawyer probably isn't a financial whiz!
- Hence, sometimes the legal, financial & tax planning "best practice" strategies & tactics will appear to be in conflict.
- Having a truly independent financial advisor/planner on your team can be beneficial. (Disclosure: I'm not an Authorised Financial Advisor)
- The Trust holds Family assets (e.g. House), Business Assets AND financial Assets. This in itself isn't necessarily a problem, but ......
- This intermingling of various assets does increase the risk profile for the Trust.
- For example, if things go awry in the construction industry business and the Trust is successfully challenged by a Creditor & "cracked open".
- Another example, and assuming the Home & rental properties are cross-securitised, is if something goes awry with the property market, mortgage serviceability etc, then ALL the assets of the Trust can become vulnerable.
- You & your wife AND your children are beneficiaries. As you have already indicated, the "wants & needs" of the beneficiaries aren't necessarily going to be perfectly aligned in the future. Formulating a comprehensive yet flexible financial plan that meets the needs of all beneficiaries equally is not easy.
With you saying that you may want to assist your children inside 10 years, I'm assuming that they are 18 or over, or will be reasonably soon. The new Act requires that certain information is disclosed by the Trustees to all adult beneficiaries.
- The new Act is yet to be properly "pressure tested" in court with some test cases, but it doesn't take much imagination to see a situation where a beneficiary of a Trust challenge the decisions made by the Trustees.
- I would go further to say that legal challenges could also be made based on their perception to whether the financial plan is A) Well considered & coherent B) Executed as per the plan.
You can probably sense where I'm going with this, but in summary; formulating a financial plan is excellent (as per the quote: "If you fail to plan, then you are planning to fail"), but I suggest there are a couple of other things you may be best to do first. -
03-09-2021, 05:42 PMFred114
There is some very sound advice here. I'm sure that other readers on the forum will benefit. Some of the observations such as intermingling of assets and cross-securitization cause me to pause and consider a review with a lawyer. I'm grateful for the wise heads here, who rightly consider "when things go awry", because, although I have no experience of that, living a financial dream is poor preparation for harsh reality. Other comments about a conservative setting of financial assets from Waikaka are refreshing to hear. It is too long since I have turned to this forum for advice. Many thanks,
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03-09-2021, 08:55 PMSBQ
@ FTG:
The key reason why so many trusts are formed 'loosely' is the intention of the beneficiaries to close up the trust in times of disagreement. A situation where the trust no longer serves the purpose of the Memorandum of wishes can easily carry on while depriving the beneficiaries. Fact being, 'circumstances' change and if the trust is setup in an iron clad way; the winners are generally the lawyers, accountants, tax accountants, investment advisors, etc. As I mentioned before with the trust fiasco, Public Trust are rubbing their hands as they ensure the trust stays operating for as long as possible. If my uncle knew of the current situation, he would be rolling in his grave. But people change. His wife changed, and what you have left is a trust that essentially has locked up the assets. HUGE rifts in the family have been caused by the formation of trusts.
I still have my eyes on a 'testamentary trust' back in Canada. Having children with disability needs, such a trust back in Canada will entitle them preferential tax treatment, aka Hensen Trust (for those that want to Google it up). NZ has of no such thing in terms of helping those with disabilities. Also no NZ financial advisor or NZ lawyer will have any knowledge of a Hensen Trust (well why would they since the scope is only NZ based ; ie with preference towards NZ investments).
YouTube has a whole plethora of asset allocation in investing. However none of the greatest investors of the world believe in such asset allocation where you have a % in fixed term assets like bonds and term deposits, and a % of equities. Good example is look what happened in the past 2 years to the bond & treasury market. Are people that stupid to earn 3% from term deposits when after tax, inflation is much higher? -
04-09-2021, 09:12 AMFTGSorry SBQ, but I need to correct a couple of your statements that you are making there.Quote:
Originally Posted by SBQ
- I wrote: ......are currently being rather "loosely" governed & administered. Not "formed "loosely". A subtle, but distinct difference. Respectfully, i would suggest contrary to what you have written, in NZ historically a LOT of Trusts have been "formed" in a very prescriptive & hence restrictive manner. An example of this is that in many Deeds it can be difficult for the Settlors to "hire & fire" Trustees.
- It's not Beneficiaries that "close up the Trust in times of disagreement" per se. The role of dissolving a Trust lies with the Settlor/Trustees. Of course as we know, sometimes in a Trust the Beneficiaries & Trustees are the same (as by name), so perhaps that's where you are getting a little confused.
Fred's Trust is based in NZ. I can't comment with any confidence on the workings of Trusts in Canada and how that relates to NZ Trust Law. In saying that, I acknowledge that there would likely be a few similarities, as they are both based on English common law (Magna Carta etc).
NZ's Trust law has very recently been hauled into the 21st century, 'tidying up' quite a few aspects. However, IMO it appears that the politicians have also interfered/tinkered, & hence overstepped, by introducing a few draconian measures. These measures seem to be premised on a view that "Beneficiaries are the ultimate recipients of a Trust's assets" so therefore they should have a disproportionate amount of visibility & 'influence' on the workings of the Trust (test case Erceg vs Erceg).
The good news for the Fred's of the world is that there are potentially a few "work-arounds", that a good Trust specialist (I agree with your comments re Public Trust SBQ by the way) can advise on & assist with implementing.
Once the foundational structures are correctly set, Financial Plans for example can be set & routinely reviewed without having to be constantly watching over ones back, worrying about adversarial action from or between Beneficiaries. -
04-09-2021, 04:37 PMSBQRelating to my previous discussion of my uncle's trust, the Settlor (my aunt) + 2 beneficiaries (their 2 children). Because of how the wording of the Memorandum of wishes, there was no way the Settlor + 1 of the beneficiaries could dissolve the trust. What happened was the aunt tried to disown the daughter for not agreeing to sign the documents as her lawyer advised if she did, she would lose how the house would be sold up and transferred to her brother (who is influencing their mom - through gifting of the assets before their mom dies). Their lawyer that had organised the trust sensed trouble and transferred it to Public Trust for the sake of keeping the trust alive. Repeated advice by their lawyer told them this would happen if the parties did not get along but instead, the aunt and son maintained a stubborn stance. The daughter tried to organise meetings but none would meet to discuss how to work things out. If the trust was not so restrictive, then the house would of easily been sold and their son would reap the full benefit. Perhaps some credit should be given to the lawyers that setup their trust because this was how my uncle would have preferred (to hold the assets for the benefit of their 2 children).Quote:
Originally Posted by FTG
On the father's side, as I said before he passed away before anything could have changed with the trust. He was the man of the house and what he said was final. I recall when the lawyers were present in their home, when they were advising how all parties required to have a trust setup in order to sub-divide the title of the property to each respecting party. I asked if there was another way doing it without forming trusts? They would not take the risk. But from my point of view as I was the only person asking questions, I explained my distaste with using trusts in NZ as the outcomes are often not in the best interest for the beneficiaries. While looking at the lawyer's eyes told them in these exact words why, "Because dead people do not speak!" and that is what we have right now. We have a situation where his wife lost all sense with the family and has been entirely brainwashed by the son and how what we've heard, in her belief that her "son should get everything". How does favoritism fit into the formation of trusts and gifting and inheritances? Because I tell you none of what my aunt and her son are trying to do would ever happen if my uncle was alive today. So when I go back to the table discussion with their lawyer at that moment of time, what I said was exactly that. When people are dead, stakeholders who are alive can change their views, siblings have fights, people get depression, etc. To hear such disrespect from a tenant that has been renting in their home, tell us that "the past is the past, he's dead, nothing you can do about it..." certainly paints a clear picture of how someone's view can change so quickly.
My reference to 'Hensen Trusts' in Canada goes to show how different NZ & Canada are in terms of why trusts are used. Fundamentally they may be similar being from Commonwealth law. But the end results are drastically different. In my other posts I fume about NZ's inequality and how the gov't has done p&&# all in helping the needy. Predominantly in NZ, trusts were used to dodge taxation ; especially in the area of Foreign trusts that we've heard about the Panama Papers exposing NZ. In Canada, trusts are NOT used to dodge taxes as they have a reset every 21 years (when all paper capital gains in the trust are taxed) and if you think 33% is high for a trust income tax rate, consider Canada's 45% income tax rate for trusts. Then there's the plethora of different kinds of trust Canada has as I mentioned before, the Hensen Trust is a "testamentary trust". How many lawyers in NZ are knowledgeable in forming such trusts? I would say very few. Seeking information online tells me my children would be better off in Canada under this kind of trust then one in NZ as IRD offers no benefit to those with disabilities. They use a very blunt tool to apply taxation to everyone and then say that's the most fair way. To me, a fair taxation is based on individual ability, not to those that finish in the top 10% of the class in school and earn a high paying job, and go on to buy multiple houses which go on to be tax free at the end. If I recall correctly, houses held in trusts in NZ benefit from paying no tax on the capital gain.
Not to rain on Fred's thread here but it is important to know that people's minds do change and no matter how tight you word the trust up or how loosely worded, the beneficiaries don't always see the benefit.