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Trust and Family Trust Law in New Zealand. Proposed law changes for 2011 by Lawyer Ian Mellett of Quay Law NZ (Remuera, Auckland)
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New Zealand Trust New Zealand Trust LawLaw
under reviewunder review
By Ian Mellett, Principal of Quay By Ian Mellett, Principal of Quay LawLaw
NZ most Trusted countryNZ most Trusted country
New Zealand has a high number of trusts per head of population relative to other countries.
Current estimated statsCurrent estimated stats
There are at least There are at least 237,500 trusts but this 237,500 trusts but this could be as high as could be as high as 400,000.400,000.
Proposed abolition of Proposed abolition of Gift DutyGift Duty
Gift duty has applied in New Zealand for many years.
On 1 November 2010, the Minister of Revenue, Peter Dunne, announced the Government’s intention to repeal gift duty from 1 October 2011.
While legislation to this effect is yet to be passed, it seems that from that date gift duty will no longer be a factor for people settling trusts.
Result: Easier to transfer assets into trustsResult: Easier to transfer assets into trusts
Trusts and 2011Trusts and 2011
Proposed abolition of Gift Duty Proposed abolition of Gift Duty together with major changes to together with major changes to
qualifying companies and the Law qualifying companies and the Law Commissions re-examination of trust Commissions re-examination of trust
law will mean this will be a law will mean this will be a momentous year for those with momentous year for those with
trusts.trusts.
The Law CommissionThe Law Commission
Publishing papers on TrustsPublishing papers on Trusts 11stst – November 2010: Summarized the – November 2010: Summarized the
history of trusts.history of trusts. 22ndnd – December 2010: – December 2010: focuses on the uses of
family trusts in New Zealand and potential concerns about some of these.
3rd - review will address issues relating to the variation of trusts and the law against perpetuities. It will be published early in 2011.
Law Commission’s Law Commission’s concernsconcerns
The transferring of assets into trusts to The transferring of assets into trusts to avoid obligations avoid obligations – to creditors and / orto creditors and / or– spouses or partners under the spouses or partners under the
Relationships (Property) Act 1976.Relationships (Property) Act 1976.
Looking to the Looking to the future?future?
– How should legislation address the need to look through trusts in certain circumstances in order that trust property can be made available to a creditor, spouse or partner or for government asset testing?
– Whether and how legislation should address sham trusts and the problem of trusts that are not really trusts?
Trusts as “look Trusts as “look through” entitiesthrough” entities
The Law Commission is evaluating The Law Commission is evaluating if it should if it should allow trust assets to be
made available to creditors, spouses and partners, and to be
considered as a part of the assets of the settlor or a person with
control over the trust for assessing eligibility for government assistance.
Trusts as “look Trusts as “look through” entities:- through” entities:-
ContinuedContinued
As an alternative, the law could continue to leave it to individual statutes to address
how a disposition of property or income to a trust is to be treated in a context where such a disposition defeats a government
policy. Because of the difficulties in creating look-through provisions that meet the needs of the various contexts to which they must
be applied, this may be the preferred approach.
Time for New Time for New Zealanders to review Zealanders to review
their truststheir trustsRegardless of the outcome of the law changes it is time for
New Zealanders to review their trusts.
Relevant considerations might include –– The intentions of the settlor in establishing the trust;– The intentions of the trustee or trustees;– Whether the trustee was indifferent as to whether a valid trust was
intended to be established;– How the affairs of the trust have been conducted;– Whether property of the settlor has been intermingled with trust
property;– Whether the settlor has treated trust property as his or her own;– The degree of control exercised by the settlor over the affairs of the
trust;– Whether the trustees have acted independently of the settlor in
carrying out– their duties; and– The real nature of the arrangement irrespective of how it is described.
Implications of the repeal of Implications of the repeal of gift dutygift duty
The repeal of gift duty may exacerbate some of the problems associated with trust use and may reduce the effectiveness of the existing legislative approaches to trusts.
Focus Independent Trustee
Trust administration and reporting Separation of trust affairs from personal affairs
Review of Trust Law Review of Trust Law in progressin progress
Whilst review of trust law is in progress Whilst review of trust law is in progress and the Law commission invites and the Law commission invites
commentscomments
NOW IS THE TIMENOW IS THE TIME
To review your trust to ensure it is able to To review your trust to ensure it is able to withstand any changes to NZ trust withstand any changes to NZ trust
legislation.legislation.
Thank YouThank You
By Ian Mellett, Principal of Quay Law