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Guide to trust based and will based estate and asset protection plans - Ross Holmes Virtual Lawyers Limited I www.rossholmeslawyers.com I Tel: ...

Guide to trust based
              and will based
             estate and asset
             protection plans

© Ross Holmes Virtual Lawyers Limited I www.rossholmeslawyers.com I Tel: +64 9 4150099 ext 0

Thank you for this opportunity to send you our Guide to trust based and will based estate plans.

Ross Holmes Virtual Lawyers Limited
Ross Holmes Trusts (a division of Ross Holmes Virtual Lawyers Limited) are estate planning experts.

Ross Holmes Trusts have a proven track record of assisting thousands of New Zealanders with their
estate plans. We pride ourselves on building close relationships with our clients in order to best serve
their needs.

We provide services to clients throughout New Zealand, using email, Zoom and telephone. We provide
online trust seminars and trust administration webinars.

Ross Holmes Trusts' Managing Director Ross Holmes is a contributing author to Lexis Nexis "Law of
Trusts" (a legal text book written for lawyers), a member of STEP London, and author of a number of
books on trusts.

Estate planning
Estate planning is in part enabling you to legally say, "I don't want the Courts to supervise my medical
or financial affairs if I can't make my own decisions or if I die. I have chosen those whom I trust to make
those decisions and I have given them specific directions on how I want those decisions made."

If you do not do this then Court proceedings are needed so that the Court can make those decisions for
you (with no guidance from you), appointing people they chose to make those decisions, distributing
your estate according to a statutory formula, while incurring substantially greater legal costs.

There are two types of estate plans:
1. A will based estate plan.
2. A trust based estate plan.

Determining whether you need a will based estate plan, or a trust based estate plan is an important
decision. Both are important plans that provide you with peace of mind knowing that your affairs will
be handled as simply and efficiently as possible with the least cost and stress to your family. The best
way to determine whether you need a will based plan or trust based plan is to read this Guide which
will help you understand the basics of estate planning. You can then talk to one of our estate planning
experts who can assist you with any questions about the estate plan which will assist you to achieve
your important objectives.

A will based estate plan
A will based estate plan consists of:
• Enduring powers of attorney as to property and welfare.
• Advance health care directives (including a living will).
• Wills.
• Funeral directives.
• A directory of important contacts.
• A relationship property agreement before you commence living together with a new partner
where is is necessary to protect pre-relationship assets.

A trust based estate plan
A trust based estate plan consists of:
• A trust.
• A memorandum of your wishes.
• Enduring powers of attorney as to property and welfare.
• Advance health care directives (including a living will).
• Wills.
• Funeral directives.
• A directory of important contacts.
• Minute book and running Instructions
• A review of your current asset ownership. What should you sell to the trust?
• A Deed of sale of assets and loan (and associated documents) selling assets from you to the
Trust.
• A Deed of Gift from you to the Trust gifting all or part of the loan the Trust owes you as a result
of the sale of assets.
• A relationship property agreement before you commence living together with a new partner
where it is necessary to protect pre-relationship assets and the trust’s assets.

What type of Trust do you need (all are tailor made for your circumstances)?

Family trusts
Family trusts are normal discretionary family trusts set up by a couple or a single person. The
Settlor(s) will normally be the Principal or main beneficiary(ies), with children or other loved
ones normally ranking second, and their descendants normally ranking third. Secondary
Beneficiaries “inherit” only if all other beneficiaries die.

Parallel trusts
Parallel trusts are two trusts, set up by couples who are entering a new relationship, set up a
trust each to keep their pre-relationship assets separate. This is to ensure that their trust retains
those assets if they separate and to ensure that their loved ones will ultimately “inherit” their
Trust. The parallel trust may contain provisions for the other partner (such as the right to live
in the Trust’s home after you die on defined terms, or the right to be maintained on defined
terms after your death). The provisions for your partner normally cease if there is a permanent
separation, or if the partner enters a new relationship after you die.

Defined interest trusts
Defined interest trusts are normally set up by a single person entering a new relationship, or
a couple entering a new relationship. These trusts provide for the single person or couple
setting up the Trust to rank number one during their lifetime (with the right to live in the home(s),
and for their welfare to be looked after). After their death, the other beneficiaries will have
defined interests. For example, the Trust may contain provisions for the other partner (such as
the right to live in the Trust’s home after you die on defined terms, and/or the right to be
maintained on defined terms after your death). The provisions for your partner normally cease
if there is a permanent separation, or if the partner enters a new relationship after you die. The
trust will then normally provide the percentages in which the other beneficiaries, or trusts
established for their benefit, are to “inherit” the Trust funds after the death of those who set up
the Trust.

Multi-generational trusts
Multi-generational trusts are set up by those who want to ensure that their wealth is preserved
in the Trust for the benefit of their loved ones, and future generations. Multi-generational trusts
are ideal for those who have one child. They have in the past been used mainly by wealthier
families who have demonstrated the multi-generational wealth-preservation benefits that such
trusts can achieve.

Business trust
Business trusts are normally established for investments where it is too risky for the main trust
to own the investment. An example would be ownership of shares in a private company, where
the shareholders may be required to give guarantees to landlords, banks or other creditors.
Normally the beneficiaries of the business trust are confined to the principal (main) beneficiaries
and the family trust.

Other types of trust
Funeral trust
Inheritance trust (or testamentary trust)
Injury and compensation trusts
Life insurance trust
Pet trust
Special disability trust

The differences between a will based estate plan and a trust based estate plan
It is essential that you have either a trust based estate plan or a will based estate plan.

In summary in a will based estate plan:
• Pros:
• The will works when you die.
• A will ensures that when you pass away your loved ones inherit your important assets
as directed by you.
• A will allows you to appoint guardians for your minor (under 18) children.
• If you have investments no new bank account and no new taxation return is required.
• Cons:
• Your will is cancelled by your marriage, unless it is expressed to be made in
contemplation of your marriage. This does not occur with the assets in a trust.
• If you have assets worth more than $15,000 your executors normally have to apply to
the High Court for probate of your will, a process which takes a long time (about 1 to
4 months), is expensive, is public, and is a hastle for your family. Until probate is
obtained your estate assets are frozen (apart from paying your funeral costs). Normally
executors cannot safely distribute your estate until 6 months after your death. These
problems can only be avoided by a trust.
• Your will can be changed by the Courts after your death under the Family Protection
Act and the Law Reform (Testamentary Promises) Act. This problem can only be
avoided by a trust.
• A will does not protects your important assets against risk during your lifetime. This
problem can only be avoided by a trust.
• Beneficiaries of your will inherit regardless of their circumstances and their inheritance
is not safe from claims by others:

• If a beneficiary is in geriatric care when you die their inheritance will be used
to pay government for their care costs.
• If a beneficiary is bankrupt or owes a lot of money to creditors when you die
their inheritance will be used to pay their creditors.
• What your beneficiaries inherit is often received later in life, and if they later
go into geriatric care will be used to pay government for their care costs.
• If a beneficiary inherits a house which they use as their home, uses their
inheritance to purchase a home, or pays off a mortgage on their home, their partner
will get 50% if they have been together for more than 3 years, unless they have a
relationship property agreement.
• These problems can be avoided by a trust.

In summary a trust based estate plan:
• Pros:
• A trust works now to protect your important assets.
• Your trust cannot be changed by the Courts after your death under the Family
Protection Act. Only personally owned assets, and loans owed to you by the Trust form
part of your estate.
• If properly prepared the provisions of the Trust deed as legally binding after you die.
• A trust is an insurance policy which protects your important assets against risk during
your lifetime, and ensures that when you pass away your loved ones inherit your
important assets safely in a manner in which others cannot take those assets from
them.
• The asset protection benefits of trusts are as important today as they have ever been.
• By transferring your assets to your Trust, you get them out of your name so that after
you die if you have less than NZ$15,000 in your name (because it is in your Trust) there
is no need for probate of your estate. Trust Administration is better than probate
because: (1) it is faster because there are no High Court delays; (2) it is less expensive;
(3) it is less hassle for your family; (4) it is private; and (5) the Trustee can be instructed
to hold funds in the Trust for any purposes detailed by you in the Trust deed e.g. for
young beneficiaries, for special needs or substance abuser beneficiaries; or for other
purposes.

• Cons:
• The additional costs of forming a trust based estate plan compared with a will based
estate plan.
• The costs of administration of a trust if you have an independent trustee.
• The costs of an additional taxation return for the trust if it is a taxpayer.
• If the trust has investments, the need for the trust to have a separate bank account, to
run the trust genuinely in accordance with the objectives of the trust, and not to mix
up trust assets with personal assets. Our trust based estate plans all come with detailed
instructions, and template minutes, so trust administration is not more difficult that
you owning and administered those assets. The trust minute book is your new filing
system for trust documents.

A Trust is the only alternative to a Will.

The mistakes which are frequently made when setting up trust based estate plans
In my work as a trust specialist I have found that the common mistakes which people frequently make
when setting up trusts based estate plans with advisors who are not estate planning specialists include:

1. Being advised to have an independent trustee, but not being told:
a. That Trustee must be involved in every decision.
b. To change or remove a Trustee (including if they retire, die or become mentally
incapacitated) is very expensive.

2. A Trust deed only (frequently in an outdated format) is all that is prepared. All Trust deeds
needed to be updated after August 2019 when the Trusts Act 2019 (which came into force on
30 January 2021) clarified/updated trust law.

3. Deeds of Loan, Deeds of Gift and initial minutes of Trustees are frequently not prepared.

4. Practical running instructions and future draft minutes are not often given to you, and you
therefore do not know how to run the trust. Unless you receive template minutes for trust
decisions, you will not know how to record trust decisions.

5. New wills leaving your assets to the Trust, and enduring powers of attorney, are frequently not
prepared.

Most non-trust specialists (lawyers and accountants) do not have the technology or the expertise to
prepare a comprehensive trust based estate plan.

How you can protect your important assets during your lifetime with a trust
based estate and asset protection plan
I have seen disasters caused when people do not have a trust based estate and asset protection plan.

These include:
• Payments to former partners.
• Business people being knocked down by the curved balls of the economy.
• Those over 65 having their lifetimes savings eroded by geriatric care costs.
• Will challenges by partners and children.

This saddens me, especially when with trust based estate and asset protection planning these disasters
could have been avoided or minimised.

Let's look at how you can protect your important assets with a trust based estate and asset protection
plan. This involves setting goals, and planning comprehensively to achieve those goals. As has been said:

Goals are the fuel in the furnace of achievement - ¯ Brian Tracy

Obstacles are those frightful things you see when you take your eyes off your goal - - Henry Ford

Over the years I have seen many people who have lost assets by failing to set goals and planning
comprehensively to achieve them. This has happened both to people without trusts, and those with
trusts who have not planned comprehensively or safely.

Relationships

Case 1:
Kim saw me in 2004 when she bought her home for $600,000 with a mortgage of $400,000. She
decided against a trust. Keith moved in 2006. Kim received a $400,000 inheritance from her mother in
2007 and paid off her mortgage. Kim and Keith separated after 4 years in 2010. The house was then
worth $800,000 with no mortgage. Of the equity of $800,000 Keith got 50%.

Case 2:
Jill saw her local lawyer in 2004 and formed a trust to purchase a home for $600,000 with a mortgage
of $400,000. The Trust was poorly prepared and unwisely included partners and children's partners as
beneficiaries. John moved in 2006. Jill's Trust received a $400,000 inheritance from her mother in 2007
and paid off its mortgage. Jill and John separated after 4 years in 2010. The house was then worth
$800,000 with no mortgage.

John applied to the High Court to remove Jill as trustee of the Trust, and to appoint the Public Trust in
her place on the grounds that she was biassed. The High Court agreed. How the discretionary
beneficiaries (Jill and John) will benefit was determined by the Public Trust's in their sole discretion.

Statistics:
Many relationships fail. According to Statistics New Zealand in 2019 there were 8,391 divorces per year
and 19,416 marriages of New Zealand residents. In addition the general marriage rate dropped to a
record low in 2019. Only 10 couples per 1,000 people eligible to marry (unmarried people aged 16 years
and over) did so in 2019, so relationship failure rates are far higher when de facto relationship failures
are included.

Solution:
An inheritance, which is separate property, if put into a home which is relationship property, becomes
relationship property. If Kim and Jill had had a properly prepared trust, which did not include future
partners, which owned the property before Keith and John moved in, the home would not have been
relationship property. The inheritance left to the Trust would not have been relationship property. For
safety a relationship property agreement is needed. Keith and John would have got nothing.

Death and future partners
Case 3:
Joseph and Daisy were married with 2 children. They saw me in 1985 when their net assets were
$200,000. They decided not to form a trust. Joseph died first in 2000, and Daisy inherited his estate. She
was then worth $700,000. In 2003 Daisy married Henry who had 1 son.

The result was that the marriage cancelled Daisy's and Henry's wills.

Daisy and Henry sold their previous homes and bought a jointly owned home worth $1,200,000, each
putting in $600,000. Daisy had $100,000 in her bank account.

Daisy died in 2009. Jointly owned assets pass by survivorship to the other, in the case of couples,
regardless of what their will says. The assets are then exposed to risk in the name of the survivor.

Henry got the bank account under the Administration Act.

Statistics:
According to Statistics New Zealand in 2019 5,268 out of 19,071 marriages of New Zealand residents
or 28% are remarriages.

Solution:
If Joseph and Daisy had formed a trust, it would have had a provision in it excluding future partners as
beneficiaries. On Joseph's death his will would have left his estate to the Trust, thereby making those
assets safe from future partners in the Trust. The Trust would have protected Joseph and Daisy's assets
for Daisy during her lifetime, and their children on Daisy's death.

Creditor Protection
Case 4:
Mark and Joy set up company in 2000 on their own with Mark and Joy were Directors. Both of them
guaranteed the Company's lease and the Company's creditor's accounts.

The Company failed in 2010 with $200,000 debts. It had a lease with 4 years to go at $100,000 p.a.
which could not be released. Both Mark and Joy were bankrupted.

Statistics:
According to the Insolvency & Trust Service there were 1,107 bankruptcies from July 2019 to June 2020.

Solution:
If only Mark was appointed as a Director, only Mark would have been required to guarantee the lease
and creditors accounts. Mark and Joy would have been paid a market rate salary. The surplus profits
would have been paid after company tax to a Trust as the shareholder.

When the business failed the Trust's and Joy's assets would have been safe. The only asset exposed to
claims would be Mark's loans to the Trust not gifted more than 5 years before his bankruptcy.

Geriatric care means testing
Case 5:
In 2008 Jill had stroke at age 67 and went into a rest home. She had a home worth $600,000. As
detailed below, only $200,000 was exempt from geriatric care means testing. Jill had to pay for her care
costs.

Statistics:
In New Zealand in 2013 31,899 people lived in residential care according to Statistics New Zealand.
Solution:
In 1990 Jill sold her house to a Trust when she was 47 when it was worth $300,000. When she went into
care in 2010:
• The increase in value was protected from geriatric care means testing thereby protecting
$300,000 (assets double in value every 20 years with just 4% inflation).
• The 11 gifts of $27,000 p.a. she made were completed in 2001 at age 58 (more than 5 years
before applying for the residential care subsidy.
• She qualified for the residential care subsidy.

Income thresholds
Under the Residential Care and Disability Support Services Act 2018 and the Residential Care and
Disability Support Services Regulations 2018, most income is means tested. From 1 July 2021 income
does not include any money that your spouse/partner has earned through employment; income from
assets when the income is under $1,042 a year for single people, $2,083 a year for a couple when both
have been assessed as requiring care, $3,125 a year for a couple where one spouse/partner has been
assessed as requiring care; a War Disablement Pension from New Zealand or any other Commonwealth
country. 50% of the income from New Zealand registered superannuation schemes and 50% of life
insurance annuities are also exempt.

Asset thresholds
Under the Residential Care and Disability Support Services Act 2018 and the Residential Care and
Disability Support Services Regulations 2018 assets are means tested until assets fall below the
following amounts. For the year from 1 July 2021 to 30 June 2022, the asset limits are:
• If the person has a partner who is not in care, they can choose EITHER
o a maximum of $239,930 including their home (principal place of residence) and a car
(Threshold A), OR
o $131,391 not including their home and car (Threshold B).
o If the person does not have a partner in the community, or has a partner who is also
in care, then the asset limit is $239,930 (Threshold A only).

Asset Exemptions: Single and couple both in care Couple - one in care: Your house is
exempt plus

1 July 2020 $239,930 $131,391

plus consumers price index (CPI) plus consumers price index (CPI)
increases on 1 July every year increases on 1 July every year
thereafter thereafter

What is meant by "assets"?
"Assets" generally includes all assets of the applicant and their spouse capable of being realised. There
are however some specific exclusions.

Exempt assets
There are a number of assets which are not counted in the financial means assessment. For example,
"exempt assets" include:
o Household furniture and personal belongings, e.g. clothing and jewellery;
o Up to $10,000 per person of pre-paid funeral expenses;
o The home and car if Threshold B is chosen.

Please note that each spouse, whether one or both are in care, may have up to $10,000 per person of
prepaid funeral expenses exempted. See the Regulations for a full list of exempt assets.

Exempt home
The client's home may be an exempt asset if the client's partner still lives in it, as long as it was their
"principal place of residence" before the client entered care (refer to the asset thresholds above). This
can include a home owned absolutely, a life interest in a home or a licence to occupy a home (e.g. in
a retirement village).

The debt asset owed on transfer of a family home to a trust or other family member cannot be the
client's "exempt home" under Threshold B. The house has been sold and is owned by another party.
It no longer belongs to the client. The resulting debt is not "an interest in a residential dwelling" and so
is not considered an exempt home.

The value of the assets must be determined on the date the application is received (section 145 of the
Act). However, financial eligibility to the subsidy may be backdated to the date on which the client first
became eligible in the last 90 days, or entered care, whichever is later (section 147(4) of the Act).

Under the Regulations each gift of $27,000 in total per year per single applicant or per couple for the
residential care subsidy is safe if it is made more than 5 years before applying for the Residential Care
subsidy. In addition, you can gift up to $6,000 per year per application in the 5 years before the
application without it affecting your financial means assessment. The excess is treated as deprivation
of assets and is usually added back, and treated as your assets.

Placing your assets in a trust pegs the value of those assets at today's values, and gifting at $27,000 per
person per year maximises the exemptions available if you go into geriatric care.

11

Example 1:
Comparison between a couple aged 50 with and without a trust, one of whom dies, and the other goes
into care in 20 years at age 70, with inflation at 4%

 With trust                                                                        Without trust

 $500,000.00                             House now worth                           $500,000.00

 $500,000.00                             Value of parties' interest in house in    $1,000,000.00
                                         20 years with 4% inflation

 $400,000.00                             Term deposits                             $400,000.00

 $450,000.00 will of deceased = to       Wealth of survivor in 20 years, after     $1,400,000.00
 Trust                                   death of 1 partner                        will of deceased = to partner

                                         Exemptions from geriatric care where
                                         1 dead & the other in care:

                                         $239,930 plus

                                         CPI increases x 20 years

 $239,930 plus CPI increases for 20      Total exemption:                          $239,930 plus CPI increases for 20
 years                                                                             years

 $239,930 less CPI increases for 20      Amount which must be paid for             $1,160,070 less CPI increases for 20
 years                                   geriatric care costs before residential   years
                                         care subsidy

                                         Exemption for gifting:

 $405,000.00                             15 years x $27,000.00                     $0.00

 $30,000.00                              5 years x $6,000.00                       $0.00

 $435,000.00                             Total gifting exemption                   $0.00

 All assets exempt from geriatric care                                             Does not qualify for residential care
 means testing                                                                     subsidy

Many advisors are incorrectly advising clients that these asset protection benefits of a trust, which
result from the increase in value of the the Trust’s property, and gifting, no longer apply. Such
generalised statements, without a detailed analysis of what has happened, are grossly negligent and
incorrect.

Example 2:
80 year old couple with house worth $500,000.00 and limited savings, one dies and the other goes into
geriatric care 3 years later, where trust formed, house ownership transferred to tenants in common in
equal shares, and wills leave all assets to trust. No assets owned now by trust:

© Ross Holmes Virtual Lawyers Limited I www.rossholmeslawyers.com I Tel: +64 9 4150099 ext 0

With trust Without trust

$500,000.00 House $500,000.00 $500,000.00

$250,000.00 Wealth of survivor after death of 1 $500,000.00
will of deceased = to Trust partner House passes to survivor

Exemptions from geriatric care where
1 dead , the other in care:

$239,930 plus CPI increases for 20
years

$239,930 plus CPI increases for 3 Total exemption: $239,930 plus CPI increases for 3
years years

$10,070 less CPI increases for 3 years Amount which must be paid for $260,070 less CPI increases for 3
plus 50% of any increase in value of geriatric care costs before residential years plus any increase in value of the
the property care subsidy property

How to form a trust as part of a trust based estate and asset protection plan
Because of each person's unique situation, trust based estate and asset protection plans must be
custom made to meet your special requirements. You need advice on whether you require a single
Trust, or more than one Trust. The trust deed must now as a result of the Trusts Act 2019 record the
Trust’s objectives. The Trust deed needs to be modified so that it achieves your important objectives.
Most trusts are poorly prepared off the shelf trusts with a few blanks filled in.

Step One - complete our questionnaire
You need to identify and record your objectives so that you can plan to achieve them. To do so, simply
complete our detailed questionnaire. To plan successfully you need to plan for both the best and worst
case scenarios.

Step Two - decide who the Trustees should be
Never have a rubber stamp trustee.

All trustees must act honestly and in good faith - Dundee General Hospitals Board of Management v
Walker and Another [1952] 1 All ER 896. This means all trustees must take part in all decisions. If they
do not the decisions will be invalid - Turner & ors v Turner & ors [1983] 2 All ER 745.

We recommend that you have your own private Trustee Company as the sole trustee

Under section 14 of the Trusts Act 2019 only 1 Trustee is legally required. As legislation requires that
the Trustee's name be recorded as the asset owner for land, company shares and life assurance policies
the Trustee should always be a private company to minimise ongoing costs. The people who would
otherwise be the Trustees are the Directors of the Trustee (and can include an "independent" Director
if required - but only if they are genuinely involved in all decisions). You will be the shareholders of the
Company, and can without cost hire and fire Directors. If a trustee dies or becomes mentally
incapacitated, they cease to be a trustee, and the title to trusts properties (which are registered in the
names of the Trustees and not the Trust) must be changed. A very expensive High Court order is
required to remove an incapacitated Trustee's name off property titles. Unfortunately very few trusts
are prepared in this manner.

13

Step 3: Decide upon the trust based estate plan structure needed for you:
•       Family trust (discretionary trust).
•       Parallel trusts
•       Defined interest trust
•       Multi-generational trust
•       Business trust
•       Inheritance trust
•       Special disability trust
•       Investment company owned by a trust

The trust based estate structure must be safe
The features of a safe "Family" Trust are:
•       It must detail the Trust’s objectives. These will normally be that:
•                The Principal Primary Beneficiaries are yourself or yourselves.
        •        You can occupy any Trust’s residences or sections, and be maintained in the standard
                 to which you are accustomed.
•                The Class B Primary Beneficiaries will normally be your children (or the other loved ones
        if you do not have children) who rank second, who are to be looked after after the needs of the
        Principal Beneficiaries have been looked after.
•                The Class C Primary Beneficiaries will normally be your grandchildren (or the children
        of the others whom you have named to benefit in your will) who rank third, and take the
        position of their parent if they die before you.
•       We however tailor make these provisions to reflect your wishes.
        The Secondary Beneficiaries (who get nothing unless all Primary Beneficiaries die), should be
        those whom you wish to benefit if all Primary Beneficiaries die.

For Income Tax purposes (as a result of the complex accruals rules) you must have natural love and
affection for the trust’s beneficiaries (which means they must be close blood relatived or lifelong family
friends), or New Zealand tax exempt charities if you are making gifts to the trust while you are alive or
on your death.

The Trusts Act 2019
The Trusts Act 2019 came into effect on 30 January 2021 (18 months after it received Royal assent). See
http://www.legislation.govt.nz/act/public/2019/0038/latest/DLM7382815.html#DLM7382879

The Trusts Act 2019 replaced the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law
more accessible, clarify and simplify core trust principles and essential obligations for trustees, and
preserve the flexibility of the common law to allow trust law to continue to evolve through the courts.

The Act provides better guidance for trustees and beneficiaries, and make it easier to resolve disputes.
Generally, the Act clarified core trust concepts, made trust legislation more useful, fixed practical
problems and reduced costs. It also modernised outdated language and concepts. Some of the changes
included:
o       a description of the key features of a trust to help people understand their rights and
obligations;
o       mandatory trustee duties and default trustee duties (which apply unless they are modified or
excluded) based on established legal principles to help trustees understand their obligations;

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14

o       Clarifying that a trustee has an obligation to have regard to the context and objectives of the
trust when performing their duties;
o       requirements for managing trust information and disclosing it to beneficiaries (where
appropriate), so they are aware of their position;
o       flexible trustee powers, allowing trustees to manage and invest trust property in the most
appropriate way;
o       provisions to support cost-effective establishment and administration of trusts (such as clear
rules on the variation and termination of trusts);
o       options for removing and appointing trustees without having to go to court to do so.
o       the abolition of the rule against perpetuities, and the setting of a maximum duration of a trust
at 125 years;
o       a requirement for any person paid to give advice in relation to the creation of a trust (such as
a lawyer or accountant) to, prior to the creation of the trust, give specific advice to the settlor about:
o       the meaning and effect of any modification or exclusion of a default duty; and
o       the inclusion of any clause limiting or excluding the trustee's liability for a breach of trust, or
granting the trustee an indemnity against the trust's property for the trustee's liability for breach of
trust;
o       a requirement for each trustee to keep specified documents relating to the trust, including
records of any decisions that they have made and contracts that they have entered into.

Our trust deeds have been updated to cover the new provisions included in the Trusts Act 2019.

How a trust works
To avoid the risks detailed above, you normally sell the assets which will increase in value (and all
income producing assets (other than PIE investments where advice is needed)) to the trust for their
current market value, unless there are taxation reasons which make this undesirable or you intend to
sell one of your assets in the near future:

You get back an IOU (a Deed of Loan).

Increases in asset value belong to the Trust.

While gift duty was abolished on 1 October 2011, and the IOU can be gifted in one gift, if you do so the
Ministry of Social Development will treat this as a deprivation of assets for geriatric care means testing
purposes, and will treat gifts of more than $27,000 per single person and per couple as part of your
assets. Accordingly gifting normally reduces the IOU by $27,000 per year per single person or $13,500
each per couple per year.

With a trust, assets stay within it until it is sensible for the beneficiaries to inherit. With a good trust
based estate and asset protection plan, assets can pass from the trust to the beneficiaries' trusts, or if
you have one child be “inherited” by that child. No one can take those assets from your beneficiaries,
as they never belonged to your beneficiaries.

Your new will which normally leaves your assets to the trust is simple, totally safe and sensible. It
completes gifting not completed at the date of your death without gift duty, and puts all assets still
owned by you into the trust. They are then totally safe. In the case of couples all assets should normally
be owned by the trust, so that nothing passes by survivorship to the other.

© Ross Holmes Virtual Lawyers Limited I www.rossholmeslawyers.com I Tel: +64 9 4150099 ext 0

Once all of your assets have been gifted to the Trust, no one can challenge your will on your death as
you have no assets.

A trust based estate and asset protection plan works because of two simple facts:
1. The value of your present assets is fixed at today's values, while future increases in value belong
to the trust.
2. A will leaving assets to the trust makes sure that the trust gets wealthier on your death or on
the death of your relatives.

Operating the trust
Operation of the Trust is easy

With our unique detailed running instructions and draft minutes the trust will work much the same as
you presently do. If anything, it is less complicated.

Your personal bank account will still be used for your personal income and personal spending. You own
depreciating assets (furniture & cars)

The Trust normally owns appreciating assets. The Trust's bank account is for trust investments, trust
income & payments to beneficiaries.

You live in the Trust's house. You pay rates, insurance, maintenance and interest. The Trust pays the
principal mortgage repayments. You lend the Trust the money to pay the principal loan repayments.

Ross Holmes Trusts prepares detailed running instructions and draft minutes to enable trustees to easily
operate the trust. We can assist you to administer the trust as required.

The costs involved
In the case of Ross Holmes Trusts the investment in the will based estate plan or the trust based estate
and asset protection plan is usually a one off cost.

So long as the trust based estate and asset protection plan includes practical running instructions, the
on-going running costs will not be great, as the trustees can take care of the administration themselves.
The security and future safety achieved through your trust based estate and asset protection plan
makes any upfront costs very worthwhile.

Please find attached a separate sheet with the costs of a Ross Holmes Trusts will based estate plan and
the trust based estate and asset protection plan .

Our promises
• If you have assets, or are building up assets, you come to see us for 30 minutes without cost.
We can relate everything we know to your personal situation.
• If you have a trust we can review it, and make sure that it has been well prepared, is up to date,
and part of a comprehensive trust based estate and asset protection plan.
• The trusts we form are no more difficult to run than your own affairs.
• We are here to support you as required if you need advice.
• There are no ongoing fees unless you consult us, and you are not tied to us.

16

Contact us
We would like to offer you a 15 minute, free, no obligation session to discuss your individual situation.
Please call us now on + 09 415 0099 extension 0 for a free no obligation 15 minute appointment.

For more information please visit www.rossholmeslawyers.com.

        Auckland:                                                  Rotorua:
        2 Airborne Road, Albany                                    1140 Tutanekai Street
        PO Box 33-009, Takapuna, Auckland 0740                     PO Box 560, Rotorua
        Phone + 09 415 0099 extension 0                            Phone + 07 349 4348
        Email: reception @rossholmes.co.nz

We look forward to hearing from you!

© Ross Holmes Virtual Lawyers Limited I www.rossholmeslawyers.com I Tel: +64 9 4150099 ext 0

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