The Property (Relationships) Act, which came into force on February 1, brings with it some changes for trusts - and a number of significant opportunities. In this article, CCH outlines some of these changes and the opportunities provided by will trusts are described.
The law changes with regard to trusts
However, there is a type of trust that is exempted by the legislation from these new powers. This is the testamentary or will trust, i.e. a trust that is created under a person's will and which comes into operation upon the death of the person.
The will trust
There are people with assets who, for whatever reason, do not
want to form a trust now and transfer assets to it now, but would
be willing to form a trust under their will. This would enable
a person to leave assets, such as his or her interest in the family
home, to the surviving spouse or partner via a will trust without
any fear that the property interest would be vulnerable to attack
if the surviving spouse or partner enters a new relationship or
remarries.
When estate duty was in force, will trusts became very popular because they were the means by which assets left by one spouse, were protected from a second impost of duty when the second spouse died. The will would often leave personal chattels to the surviving spouse and the remainder of the estate to trustees. The surviving spouse would have the right to use or occupy the home property for his or her lifetime (as the "life tenant") and would receive the income from the estate. The capital would eventually go to the children on the life tenant's death. The will trust would usually include provision for the trustees to make loans or advances to the life tenant if at any time the trust income was insufficient for the life tenant's requirements.
It is important that a marriage or relationship couple are in agreement before they plan to use a will trust because the surviving spouse or partner has the power under the new legislation to challenge the will where he or she has not been left the appropriate share in relationship assets. For example, if the family home of a husband-and-wife couple was in the name of the wife, on her death the husband could challenge the will for his half-share in the property (in the same manner as if they were separating). However, once past this point the property (or the half-interest if it is owned equally) would be secure in the will trust. If the husband remarries or enters a new de-facto relationship, the deceased wife's share in the property is protected for her children or the capital beneficiaries of her will.
This arrangement opens up another possibility. Rather than the assets going to the children on the death of the life tenant, it would be possible to structure matters so that the assets stayed secure in the will trust for another generation. There is of course a limit to how long this can go on for, as there is a limit to the life span of a trust, but with will trusts this limit has not often been fully exploited. The new Property (Relationships) Act provides added incentive to do so.
John Brown LLB, Dip Fin Pl
is the author of the New Zealand Master Trusts Guide, which
looks at different types of trusts, trust busting, trustees' duties
and beneficiaries' rights. It includes a clause-by-clause analysis
of a family trust deed and sample trustee resolutions. The book
is intended for those who have some understanding of trusts and
wish to know more. For more information buy John's book, The New Zealand Master Trusts Guide here
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