Succession Planning

No one is too young or too old to start.

How well are we as investors set up for it?
How well are companies we invest in set up for it?

Tom Caughey of Smith & Caughey Ltd in its 6th generation

https://gilligansheppard.co.nz/joshn...oints-to-note/

I personally find trusts are getting more difficult to navigate but then are the options better?
Company structure?
Individually held?

All have their pros & cons

Here's my problem I have with trusts in NZ, the lawyers seem to pitch it in all Godly like scenarios that can wreck havoc on the family estate. To me that doesn't fit well with me and it's like a dirty car salesman that presents a car to you in the best way but there are mechanical issues with the car. Of course you can always take the car to an independent garage mechanic for a different valuation, you can't simply tell the lawyer as you sit in their office what are the chances of "such scenarios" actually happening during the life of the trust? Like financial advisors, those selling trusts are in the same game. Having best interests in their clients should not mean stacking all the fees for owning a trust. All queries and transactions are stacked at the highest fee possible in the trust and while one may think it's excessive with run of the mill lawyers, consider how much the NZ gov't 'Public Trusts' get away with. Asset administration costs i've been told at 10% of the estate value. This is the price you pay to have a trust but since this fee is a moving target, the lawyers aren't privy to give you exact figures because they always say (like financial advisors) 'it depends on the client's situation'.

For the masses that have a investments, say assets less than $1M, I would say it's not worth having a trust. It has nothing to do with age but rather, the cost of administering the estate becomes excessive.

Succession plans should not have to involve lawyers. If the father of the business trains and trusts their son to take over, then that is how it should go. The only reason for seeking lawyers if there's conflict. As Warren Buffet says, "Choose your partner wisely" (when choosing someone to marry). If the son chooses a gold digging wife, then the trust card can be played. But if you noticed families with extensive wealth and strong bonds try not to involve trusts.

Company structure vs Trusts? Well how about 30% tax vs 33% ?

One thing that these lawyers and trust promoters don't talk much about is the importance of non-residency. They don't explore the possibilities of the individual looking to move their assets abroad. After all nearly 20% of Kiwis live abroad and I can assure you those that have significant wealth, do not choose NZ to structure their succession / estate planning.

Personally being the only child, my father has no need for a trust. He knows my marriage is stable and we have clear guidelines for succession in our business. So we choose the lowest cost way by simply jointing all of our assets. When you joint property (including houses), they stay out of probate. I know trust lawyers don't like it but those lawyers don't know my family or my lineage. Trust in our family spans over many generations and I swear to my elder's grave and by doing so, we also don't have the qualms that many other families have in estate battles when someone dies.

Anotherwords, if your life and family is so complicated that you require a complex structure of trusts and lawyers, then perhaps it's not fitting to have any succession plan. It's well known for lawyers to suck out all the trust assets in fee charges and disputes. I know of an uncle (RIP)who's wife was not cooperating and spent $18K in trying to bust the family trust up. All it did was the lawyer handed their case to Public Trust as it was a ticking time bomb (threats of suing the lawyer who had established the trust long ago).

Please seek all the information you can and not from just the lawyers who sell them like in that link of yours.

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Originally Posted by kiora

No one is too young or too old to start.

How well are we as investors set up for it?
How well are companies we invest in set up for it?

Tom Caughey of Smith & Caughey Ltd in its 6th generation

https://gilligansheppard.co.nz/joshn...oints-to-note/

I personally find trusts are getting more difficult to navigate but then are the options better?
Company structure?
Individually held?

All have their pros & cons

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Yes got a family trust ... has it positives TAX wise..I use my wife's lower tax code to lower income from commercial property held by the trust ..which is a positive saving of over 12% in tax pa at present .. would like to add more investments ... I understand you can add your kids tax codes from 16yrs+ .. so one could see major TAX saving on large profitable incomes held by the trust ..

I agree at times I wish I didn't hold personal home and Commercial property in the trust when it comes to lending you have more legal costs if stay you shift banks and some banks like heartland don't even take Trust assets into the picture when it comes to lending ..

Legal costs of course we had to update are trust at great expense $4k+ after a decade of nil updates to new trust laws etc

For us I see more positives than negatives but agree those that rush to put just family home in a trust is a waste of time

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Originally Posted by JBmurc

Yes got a family trust ... has it positives TAX wise..I use my wife's lower tax code to lower income from commercial property held by the trust ..which is a positive saving of over 12% in tax pa at present .. would like to add more investments ... I understand you can add your kids tax codes from 16yrs+ .. so one could see major TAX saving on large profitable incomes held by the trust ..

I agree at times I wish I didn't hold personal home and Commercial property in the trust when it comes to lending you have more legal costs if stay you shift banks and some banks like heartland don't even take Trust assets into the picture when it comes to lending ..

Legal costs of course we had to update are trust at great expense $4k+ after a decade of nil updates to new trust laws etc

For us I see more positives than negatives but agree those that rush to put just family home in a trust is a waste of time

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Why would having the properties under a trust to realise the same tax rate as owning the property directly in your wife's name? That is not how the lawyers pitch at selling trusts to clients. The main reason (from what I always see how trusts being sold to) are to people with significant amounts of assets and quite often, claim the tax benefit IF the client is at the top tax bracket that exceeds the 33% RWT rate. I've never seen trusts marketed to those at the lower rate (ie this is similar to how Kiwi Saver PIE funds market themselves as high income earners in the high tax bracket get the tax benefit of PIE funds). As my tax prof in uni (back in Canada) told us in class that the formations of trusts don't yield any significant tax savings as the costs of administering the trust would eat all that benefit up. You have annual accounting fees (easy $3,000) + legals $2,000). To spend $5,000 a year is not small change even though it may be a tax write off vs the individual or partners owning the assets directly would not be required to have those expenses.

Then there's the elephant in the room question. What happens when the trust is wound up? The saying is dead people don't speak so it wouldn't matter to the settler as they would be long gone and dead. What we should be looking at is the stats on the # of trusts (Family etc. types) formed in NZ over the past 50 years, have ended up in dispute or have not served their purpose? I have a strong feeling it's a very high percentage.