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1 February 2024

Succession Planning – is it time to review your affairs?

Article by Rebecca Steens & Libby McDonnell.
Holland Beckett Law

A fictional case study illustrating why succession planning is important.

John Johnson is a 68 year old widower. He has a complying Family Trust that owns the majority of his assets (only his KiwiSaver is in his personal name). The Trust was established several years ago when John operated a business, for creditor protection. On his death, John intends for all his personal assets and the assets settled on the Trust to be divided equally between his daughters, Sandy (who lives in Sydney) and Wendy (who lives in Wellington).

John’s lawyer says it is generally not advisable for overseas family members to:

  • be the executors of your Will;
  • or be appointed as your attorney for either property or your personal care and welfare matters.

Having received advice, John has nominated Wendy alongside his solicitor, as the executors and trustees of his Will. For his Enduring Power of Attorney documents, John appoints Wendy and a family friend who are based in New Zealand.

John is also advised about the Trust Act 2019, which has placed increased obligations on trustees by introducing, amongst other things, the presumption of making basic Trust information available to all beneficiaries (whether they are likely to benefit or not) and the duty to invest Trust assets prudently.

John’s lawyer suggests that now would be a good time to review his Trust to determine whether:

  • the Trust is still needed;
  • trustees are meeting their obligations; and
  • the Trust Deed can or should be varied to
  • reflect the changes introduced in the Trusts Act 2019.

The advice to John is that if you don’t have a Trust for a really good reason, like asset and creditor protection, a Trust may just be another unnecessary and costly complication in life. As John no longer operates his business, he does not need the Trust for creditor protection.

However, John’s lawyer indicates that there may be benefits in keeping the Trust for residential care. In John’s case, he is likely to obtain a residential care benefit by keeping the Trust, because his personal assets fall under the threshold of $273,628, his only income is superannuation, and the Trust assets were gifted some time ago in line with MSD’s gifting rules for the residential care subsidy.

The lawyer advises that there are other estate planning options to maximise residential care benefits for couples without a Family Trust. For example, if a couple’s main asset is their home then they could consider life interest Wills so that if the survivor of them needs care, half of the equity in the home is protected. Where a single person owns a property in their personal name there are less options.

Tax is also a consideration. John is advised that in many overseas jurisdictions, distributions from Trusts are taxed more harshly than distributions from a person or from their estate. John is cautioned that if Sandy from Sydney is to receive a distribution from the Trust (rather than his estate), there may be tax consequences.

He is advised to speak to his accountant about this. Ultimately, John would have to weigh up the potential benefit of keeping the Trust in the case that he went into residential care, against the potential tax consequences for Sandy.

John suddenly passes away. Wendy from Wellington receives a half share of the Trust assets and estate assets without any deduction (as generally in New Zealand there are no tax consequences for receiving a Trust capital distribution). However, in accordance with Australian tax rules Sandy from Sydney’s half share is taxed as income and she therefore receives a significantly smaller share than her sister.

As your circumstances change, your Will and wider estate planning (such as Family Trusts and Enduring Powers of Attorney) should be reviewed.

It may be that what once was suitable for you and your family, is no longer the best option. Here are some important events that sho0uld trigger a review:

  • change in relationship status (e.g. a marriage will automatically revoke your Will but a separation will not);
  • change in financial situation
  • change in health (yours or your family’s)
  • sale or purchase of a property;
  • births / deaths
  • family members moving overseas; and
  • law changes – such as the Trust Act 2019.

If it has been a while since you last reviewed your estate planning, or if you have had a change in circumstance, we encourage you to speak to a professional about reviewing your wishes.

In particular, if you have overseas family members, chat to your lawyers about your estate planning to ensure unnecessary costs and complications are avoided.

Article by Rebecca Steens and Libby McDonnell, Holland Beckett Law

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