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  1. #1
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    Default Financial plan for family trust

    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.

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    Quote Originally Posted by Fred114 View Post
    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.
    Engage a good lawyer to help with the Trust deed.

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    Quote Originally Posted by stoploss View Post
    Engage a good lawyer to help with the Trust deed.
    First - find out if there is likely to be any benefit to you in a family trust.
    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.

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    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.

  5. #5
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    Quote Originally Posted by Fred114 View Post
    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.
    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)?
    - 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?
    Last edited by FTG; 02-09-2021 at 04:53 PM.
    Success is a journey AND a destination!

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    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).

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    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.

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    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.
    Last edited by peat; 03-09-2021 at 11:57 AM.
    For clarity, nothing I say is advice....

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    Quote Originally Posted by peat View Post
    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.
    asset allocation, yes I’d overlooked that, partly because I don’t normally apply.

    yes, if you could provide something to work off that would be good.

  10. #10
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    Quote Originally Posted by Fred114 View Post
    asset allocation, yes I’d overlooked that, partly because I don’t normally apply.

    yes, if you could provide something to work off that would be good.
    so that depends on the risk you want to accept
    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
    Last edited by peat; 03-09-2021 at 03:20 PM.
    For clarity, nothing I say is advice....

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