Trustees’ personal liability for litigation costs

It can be an unpleasant surprise

Trustees and executors are not always entitled to reimbursement for their litigation costs.

While most trustees and executors will assume that costs incurred in the course of their trustee or executorship will be paid from the estate or trust, the recent decision in Courteney v Pratley[1] is an illustration of the perils that trustees or executors can face when they go to court.

Trustees and executors are in charge of the property of others. They are not expected to pay for their own expenses in doing so and, as such, are usually entitled to reimbursement of the costs they incur.

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When Grandma comes to live with us

As parents age, their children often find they need to take an increasing role in looking after them. Unpalatable as it seems, it’s important to think about the legal difficulties that can arise where one member of the family has assumed responsibility.

If questions are asked some time later, it may not be enough to say “but that is what mum/dad wanted”. We also explain the restrictions on when an attorney (the person who holds the Enduring Power of Attorney) can benefit from the decisions they make. We touch on the issues where a parent later needs to go into care.

EPA

Often elderly people do not want to live alone. Buying a unit in a retirement village, or some other form of sheltered accommodation, may be a good option. Others may find buying a unit is not financially possible or desirable. Some prefer to stay with one of the family. In that case, an increasing burden may be thrown on the family member who is providing care. These arrangements should be recorded carefully and it’s important to get legal advice.

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Blended Families – Wills and Trusts

Can it be fair for everyone?

Making sure everyone you care about gets a fair share of your property after you die is an issue most of us grapple with. This may also have additional complications when you have a blended family.

It’s not always as easy as just writing your Will and specifying who gets what. There are several statutes that give family members and/or your new partner’s family, a right to contest your Will. The two main statutes are the Family Protection Act 1955 (FPA) and the Property (Relationships) Act 1976 (PRA).

Leaving it all to your partner?

A common way of structuring your affairs is to leave everything to your partner or spouse, knowing they will provide for your children as well as their own in their Will. These are often called ‘mirror Wills’. Unfortunately, this structure doesn’t always satisfy all the children involved, as we have seen in several recent court cases. You also run the risk of your partner or spouse changing their Will at a later date after you have died.

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Ageing Trustees

Know when to walk away

When Barack Obama was US president, he made an historic visit to Africa. One of the messages he repeated was that, under the US Constitution, he could only be president for eight years and this time limit is generally a good thing.

Obama was, of course, making an indirect reference to the tendency in some African countries for leaders to have themselves declared to be president for life. This, in Obama’s view, was not only unhealthy but also an excessive burden for one person to bear for too long.

Something similar could be said of some trustees. No one should want to be trustee for life. It’s useful for trustees to think about a succession plan: which trustees should we expect to retire or be replaced and who are the likely replacement trustees? Sometimes, likely future trustees are asked to sit in on trustee meetings to understand how the trust runs. (We have an article about the process for retiring trustees here.)

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Retiring as a Trustee?

There’s a process that should avoid any problems down the line

Many people agree to act as trustees of trusts set up by friends or relatives on the basis that they wish to help out or assist their friend or relative in some way. Eventually it comes time to retire as trustee for reasons such as age, the winding up of the trust or other changes of circumstance.

Retiring as a trustee is not as simple as it sounds and there are a number of potential liabilities that need to be covered off.

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Trusts Bill

Deals with practical issues

The long-awaited Trusts Bill was introduced to Parliament on 1 August 2017. The Bill is largely an update and restatement of the Trustee Act 1956 and the common law. However, it also deals with practical issues that have faced lawyers and trustees for some years. We outline some of the most important parts of the Bill.

‘Express trust’ defined

An ‘express trust’ is defined in the Bill. The definition makes it clear that trust property is separate from a trustee’s personal property, it must be administered in accordance with the trustee’s obligations in the trust deed, and that trustees will be accountable to beneficiaries for their compliance with the duties imposed on them by the trust deed and by law.

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FATCA

Many New Zealand businesses and trusts must complete registration and understand their reporting obligations.

With the United States Foreign Account Tax Compliance Act (FATCA) regime now in effect, it’s important that all New Zealand entities ensure they are aware of their obligations.

FATCA came into effect in New Zealand on 1 July 2014 – with little fanfare at the time. From 1 April 2017, however, the compliance obligations of the FATCA regime are now live. The FATCA regime classifies all entities (companies, trusts, associations and partnerships) as either a ‘financial institution’, an ‘active non-financial foreign entity’ (active NFFE) or a ‘passive non-financial foreign entity’ (passive NFFE).

The reason for FATCA

The ultimate goal of the FATCA regime is to find US offshore persons or entities who have been avoiding their US tax obligations. This is done by gathering information on any US persons or entities controlled by US persons holding accounts outside of the US.

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‘Nuptial Settlements’

Have I made one?

The law around trusts is ever-changing particularly with relationship property and matrimonial issues. The courts continue to chip away at the trust as an appropriate vehicle to protect assets against a relationship breakup.

The Clayton case

One area of this changing environment that will be of interest to the rural community is a consequence of some judicial reasoning in the Clayton v Clayton[1] case. There will be particular interest in the comments made in relation to ‘nuptial settlements’ and s182 of the Family Proceedings Act 1980.

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Trusts Bill

Some key proposals

In late 2013, the Law Commission completed a report recommending that a new Trusts Act replace the Trustee Act 1956. The public consultation phase began last December with the release of the exposure draft Bill. It is intended that the new legislation will be the primary source of trust law in New Zealand. We outline below some key proposals.

trustsbill

Definition

Most trusts in New Zealand are established with a written trust deed or other document such as a Will. These are known as ‘express trusts.’ The Bill only applies to express trusts. Characteristics of express trusts are defined in the Bill as:

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Parallel Trusts: Could be the best option for you

With the growth of multiple relationships and blended families many couples are having to consider ways to ringfence assets and protect inheritances. One option is to establish parallel trusts – so you each have your own trust for your share of the assets.

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