Most want trusts brought to heel

ROB STOCK

Many Kiwis feel antagonistic about the protections trusts offer. Rob Stock reports. 

Most New  Zealanders are backing a Law Commission suggestion that the use of trusts should be curtailed.

Of the 3500 people who answered a Sunday Star-Times survey on their financial habits and attitudes, 51% agreed lawmakers needed to put limits – sometimes severe – on the use of trusts. Only 16% said lawmakers should keep their hands off trust law, and 33% had no view on the issue.

The Law Commission is investigating whether an overhaul of trust law is needed, and has issued four discussion papers on the subject, suggesting lawmakers look at prescribing legitimate uses of trusts.

No one knows exactly how many trusts there are in New Zealand as there is no public register and not all trusts are registered for tax, but our survey, conducted by market research agency Buzz Channel, showed 21% had one, and 22% were trustees of a trust.

Those who felt limits were needed called for a variety of fixes (see sidebar below), with suggestions including capping the value of assets that could be held in a trust and taxing trust income at the rate of the highest-earning beneficiary.

In addition to the antagonism many feel about the protections trusts bring, there were clear indications many family trust trustees do not know how to carry out their duties.

Among those who were trustees, 19% said they were not confident they were doing all the things they should as a trustee. Even respondents who regarded themselves as well-informed were confused about their obligations.

Sixty-one percent reported they had a duty to follow the wishes of the settlor.

Trust expert John Brown, author of the New Zealand Master Trusts Guide, said trustees should have regard for settlors' wishes but must manage the assets as they see fit for the beneficiaries.

Forty-five percent felt they had a duty to let beneficiaries know they were beneficiaries. While that's a contentious question, there is currently no clear duty to inform people they are beneficiaries of a trust.

Thirty percent wrongly felt they did not have to be involved in every decision. One of the key duties of trustees is to be active, said Brown.

Sixty-five percent wrongly thought there was a duty to hold an annual general meeting.

Likewise, 74.5% felt there was a duty to record their decisions and the reasons for them, which is not the case. Indeed it is widely considered unwise for trustees to do so, as it can make legal challenges easier.

Among the Law Commission discussion paper suggestions is that trustee duties be prescribed in law so trustees are in no doubt about their obligations.

Some respondents to the survey admitted feeling nervous about whether their trusts would stand up if tested in court, but perhaps the strongest concern was that calls for limits on trust use would be heeded.

"We accept limited liability companies, and should accept trusts equally as legitimate ownership vehicles," one said.

So, is a change in the law likely? Once again, a split of views: 11% said it was "highly likely", 34% "somewhat likely", and 23% were convinced it would not happen.

LOVE AND HATE

When it comes to trusts, it seems New Zealand is a nation divided.

Many people feel strongly that greater limitations on trusts are needed, with many suggesting capping the value or limiting the kinds of assets that can be held in non-charitable trusts.

Responses to our survey included:

"I don't think people should be able to hide income/assets in trusts to prevent fair sharing of financial assets in marital break-ups or to receive working for families payments from the government."

"We earn incomes, we are hard working middle income earners – we can't hide anything – why should other people be able to?"

"If you owe creditors then they should be able to get their money from any trusts that you or an immediate family member are a trustee for."

"At a minimum, trusts should need to return all gifts to settlors who are later bankrupted."

"The only thing you should be able to protect with a trust is a family home."

"Trusts should have a cap of say $1.5m."

"As I get older it does piss me off to see friends with millions in their trusts and benefit cards."

But others say the reasons they set their trusts up were nothing to do with the widely perceived unfair benefits critics decry.

Such responses included:

"To protect the family assets from `bad' relationships/marriages."

"So that if my husband and I passed away while the children were small, the house would be protected until an age where they would be able to look after it."

"I had been diagnosed with a life-threatening illness so we set up the trust to protect our home for our children in case my husband's future partner tried to claim half ownership of the house."

"We have our own business and to some extent depend on other consultants. We needed to protect our home should a colleague's performance result in our losing our business."

"I formed a trust hoping that all my present assets would benefit my children and not half of it going to somebody who married me `just for my money'."

"My ex-husband had said that he was going to murder me and I didn't want him to get my assets, so I got a boyfriend with a gun and a house down a back section and a family trust. So far, so good... "

"To transfer wealth to grandchildren without it going through their parents' hands."

"Our money-grubbing solicitor urged us to put the house in a trust – we still aren't sure given what it cost us to set up. For two pins, I'd dissolve the trust – except it would probably cost me."

- © Fairfax NZ News