Changes mooted for discretionary family trusts

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The 1990’s legislation which means tested the over 65’s for rest home and hospital care precipitated an avalanche of discretionary family Trusts. Set up by middle New Zealanders to protect their family home and investments for their children and remove the opportunity for the State to extract compensation from the estates of people involved in the Trusts for the cost of hospital and rest home care.

A number of these Trusts have not been properly administered with the result that the Government has asked the Law Commission to suggest changes to the law that will make administration easier and disputes simpler and cheaper to resolve.

The Law Commission has issued discussion papers suggesting the following:

• Allowing the District Court to hear cases. Currently only the High Court can hear Trust cases.

• Creating an Ombudsman for Trusts so that those affected by Trusts could get a non binding ruling. 

• Setting up a Specialist Trust Tribunal that would make binding rulings subject to appeal.

• Mediation or arbitration of Trust disputes.

The setting up of new Trusts has slowed to a trickle as a result of changes to the WINZ regulations in terms of how much can be gifted to a family Trust and changes in Tax Laws.

Disputes over Trust will now come into focus, mainly in the following situations:

• When couples separate and argue about what is to happen to Trust assets.

• On the death of one or both of the Settlors (the persons establishing the Trust) and their children argue what is to happen to the Trust assets.

At Smith & Partners, we support any changes which don’t alter traditional Trust Law but which make the disputes easier and cheaper to resolve will be welcomed.

The disputes that are foreshadowed above can be pre-empted by:

• Couples entering into a variety of relationship property agreements which confirm just what is to happen to trust assets upon separation or death.

• Completing a memorandum of wishes or a deed of distribution which sets out the settlor’s wishes in respect to disposition of assets on their death.

Should you wish to make a submission to the Law Commission on their review, you can do so at www.lawcom.govt.nz

If you have any questions regarding the above, or wish to seek advice regarding family trusts, please contact family trust solicitor, Peter Smith by phone on 837 6882 or email peter.smith@smithpartners.co.nz 

 

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