By Michael Coote
Family trusts are under attack from a Law Commission inquiry into the laws on which they are based.
89 Comments
Why would anyone want to be an Entrepreneur in New Zealand?
Over priced advisory costs - Lawyers, Accountants, RMA, Crap HR law, crap capital markets
And when you want to protect your personal assets they are going to open it all up.
Bureacrats would not have a clue about the real world and how to build an economy.
and NZ seems to always score very well as one of the best places to start a business...funny that.
Maybe you could suggest a country thata doing well? The USA maybe? basket case....China? no RMA for sure but its a hell hole....India? wins awards for corruption (highest)....
regards
Just because it takes 30mins to start a business via the companies office is not a gauge. How many new millionaires are created in India and China everyday?
NZ has very sticky wealth movement, it is difficult for people in the lower or middle to move into the higher class. And the costs of compliance, advisory and other barriers further prevent class movement from occuring.
Family Trusts are a useful tool to de-risk starting your own business. To protect the assets you may have already built up and to incentivise taking a punt!! It is very very difficult to avoid having to sign Personal Guarantees on Petrolcards, Photocopiers, stationary supplies, rental of cars/business premises and for most other trade suppliers.
But why should the family home be on the block?
I think you answered my question below.
If as a business owner, you fail in your business endeavour, you don't want to have to make good all your creditors? You want to walk away leaving the smaller sods who didn't have the pull to get a personal guarantee out of you to lose whatever it is you owe them.
Is that right?
And in answer to your question,
But why should the family home be on the block?
I guess because at the end of the day, you received goods or labour somewhere in the conduct of your business that you hadn't yet paid for. And, unless you can legitimate a reason for not paying, when you actually have the accumulated wealth to pay, then why shouldn't the family home need to be liquidated to make good on your borrowings (because that's what it is when you receive goods or labour in advance of payment).
That’s why it is called a Limited Liability Company. You have no recourse to the owners. Provided the failed business has not traded recklessly or whist insolvent or made illegal dividend/asset sales or payments to related parties (i.e. Hanover and most Finance Co. Directors should be culpable). What recourse should an unsecured creditor have except to the balance sheet of the company in accordance with there rank, probably behind a bank with a GSA.
A lot of small businesses in Christchurch will be thinking about this right now. For events out of their control many in the CBD will be unable to wind-up their business's and have any form of surplus to pay unsecured creditors. What is a coffee shop in the CBD worth at the moment - definitely no goodwill. Most will not have cash or be lent money to get through to start up in 18 months time. Many will fail; most won't have business continuity insurance.
Why should creditors have call on the Family home?
i.e. Coffee Shop Limited took beans in advance from suppliers because that is the terms of trade within the coffee bean market. It’s the person who advanced the coffee beans that took part of the risk on this business they should share the loss, not the business owner’s family.
Goldenfox
Do you think entrepreneurs and high earning professionals should pay tax?
Do you think the should be able to put assets into trusts so that creditors, the courts and the IRD can't get access to them?
Do you think it's fair that business people who have been bankrupted should be able to continue in business (and with the lifestyles to which they have become accustomed) via family trusts?
Do you think PAYE earners will be happy to take the bulk of the tax burden when those with clever enough lawyers and accountants can avoid paying tax?
Do you think investors who have lost money in Bridgecorp or Nathans Finance or Hanover Finance are relaxed about Rod Petricevic and John Hotchin and Mark Hotchin continue to live comfortable lives in flash homes and cars owned by family trusts?
cheers
Bernard
Well done Bernard
I couldn't have said it better
and of course the rort to put assets into trusts so that cannot be used to pay for your accommodation at the end of your life - leaving the state to foot the bill.
The proliferation of trusts are one of the great evils of modern society - driven by greed and fear.
The sooner trusts are made to revert back to what they were intended for - to hold assets and preserve income for those incapable of doing so - the better.
I beleive the only beneficiaries of trusts should be minors, and those of no fit mind.
everything else is a rort
relative lower cost to set up/barriers to entry of companies...not best, interesting to see you definition of best and robust research to match. When it comes to enterprise and innovation look where the growth in effective companies comes from, not NZ, as example...consider what the US produces per head of population with regard innovative, enterprising companies...no debate to be had.
Bernard
Why is it that when trusts are mentioned it is assumed that the tax rates are lower than what individuals would pay? The Trustee tax rate is now the same (33%) as the highest individual rate so there is no income tax benefit in having a trust. Most trusts are set up with long term asset protection in mind and that is quite legal. Where they have been used by unscrupulous developers and their friends in the failed finance companies, they were often pushing the tax and other laws beyond legal bounds. This is a separate issue to all the small business owners and "mums and dads" who have been operating trusts legally and ethically for years.
Personally I think there will always be people who are morally bankrupt and will look to avoid paying their share of tax. They are the same people who will own millions in property and skite about claiming WFF or avoiding Child Support. This small percentage should be stamped on without penalising the vast majority.
When I studied Trustee Law it was explained the origins of trusts was borne out of a need by the landed gentry to protect their large estates, land-holdings and other assets from the ravages of death-duties and Sur-taxes. They did not have as their purpose the avoidance of creditors. In fact the current exploitation of Trusts was never even contemplated. It was the domain of the wealthy and they "always played the game" according to gentlemans rules.
Spot on iconoclast ... splendid summation of such matters.
Yes, the bourgeoisies have been supporting the rich elite for centuries ol' boy and long may it continue. We give them the impression they can aspire that they can be like us... but alas it is not to be. Credit does not buy into the elite, we have always known this, that is why we do not deal with all the "ticket clippers" out there in the "real world". We clip our own tickets amongst ourselves, thank you very much. We have got to keep it "in the family" so to speak.
Trusts just makes the bourgeoisies think they are protected ol' boy .... when in fact they are just a meal ticket for every common lawyer and accountant, all and sundry, around these fair shores.
Why, if you were as wealthy as myself and my associates, you would have assets located in various parts of the world, all in different classes and a variety of names ..... why the paper trail for my affairs would reach the moon and back.
So if you feel insecure in your fiscal affairs, by all means, create a trust .... but it won't matter when my Wall St banker friends visit this faraway land and demand their money back from your over-inflated assets... then you will see how well you were protected.
On that note, I must be off to chat to my private equity advisor in Manhattan.
Toodle Pip
Kate, we set up a trust for our family home. Main reason: our understanding of the relationship property law in NZ is that if a couple is together for 2 years then separate, the assets are split 50-50. Say we die when our kids are still quite young, they inherit our house and one ends up with some loser who's after the cash. After 2 years that person leaves and can claim part of the value of our home. I'd rather avoid that.
Secondary reason: We went into business (set up a limited liability company). The first person who wanted us to consult for him turned out to be a paranoid nutter who wanted us to sign various papers, including a non-competition clause for the whole world for all eternity (lol). On top of that he wanted us to sign a document agreeing to personal liability, ie nullifying the company "limited liability" bit (he was paranoid about us developing his "idea" into a marketable product then "selling the IP it to the Chinese" and said in that case he wanted to sue us for millions and be able to put us in prison"). Needless to say we told him to go find himself someone else, however that was only after a number of discussions during the course of which I told my husband that if we did take on his project, I wanted at least our family home to be protected. Not because I was worried we'd ever do something illegal, but because I was worried about what he could do to us if he even just wrongly imagined that we had breached the contract.
All this to say I think there's a place for trusts.
I worry a bit that you've been taken by the classic "trust industry" sales pitch.
Regards scenario one - one assumes in your scenario you die when your children are old enough to form adult relationships and make responsible adult decisions. Why shouldn't their share in assets from your estate be left to them to do, squander, develop, protect etc. as they like once the wishes in your will are implemented? Better to teach them to deal with adult responsbility in an informed responsible way - and trust they will make good judgments once you are gone. It seems overly controlling (perhaps too high an opinion of one's own self-worth as well) to have this desire to protect your children from potential bad decisions from the grave, so to speak! We are after all - all mere mortals. :-)
Regards scenario two - well there might be some legitimacy to this type of scenario, but I am inclined to have faith in my own business judgments. And if one has the added protection of indemnity insurance associated with the limited liability business endeavour, it costs alot less than the cost of setting up and maintaining a Family Trust.
I think alot of folks setting up Family Trusts to put the family home asset in them get a bit sucked in by what I call the "rock star" effect.
In many cases their beneficiaries (children) would benefit more from the money which might have been spent on Trust establishment and administration over a 20-50 year period instead being invested in a term deposit.
Re-one. Yep, and I certainly don't intend to try and "protect" my kids until they are 50. However the asset splitting law in NZ makes it extremely advantageous to live with someone, even on and off, for a couple of years as that's all that is needed to be entitled to half the other person's asset.
And I should add that we don't intend having anything other than our family home in the trust. The reason why it's called family home is because we'd like it to stay in the family. Any other assets/inheritance, well, if they lose them, too bad, they'll have to deal with making poor judgement calls.
Regarding the costs of setting up and maintaining the trust, we paid about 3K for set up I think and haven't had to pay any maintenance costs (no transactions are being done basically, other than filling in one return at the end of the year for the gift statement).
But you are right about the sales pitch on trusts. We were strongly encouraged to do it (I was totally opposed initially).
fmr ca
You're right that the top tax rate is now the same as the trust rate. But that's new.
And many people believe that 33% rate is unsustainable. When it rises (rather than if) there will be the temptation to channel assets and income back through trusts, assuming of course the trust rate stays the same.
I'd say put them both up at the same time to minimise the size of the black hole.
cheers
Bernard
Bernard. Got a case of the slows today? There is a problem. It needs a solution. Better to put up the tax rate to 10% above the individual tax rate to make (a) the formation of Trusts and private companies unattractive, or (b) to encourage those entities to disgorge all their income each year.
Often trusts are used for succession planning on farms, or they are some protection against children's partners leaving and forcing sales of farms or businesses. There are often trusts set up for children who are incapable of looking after their financial affairs. In the case of mums and dads it is usually the fear of having their assets used up in rest home charges (although I think that is what should happen!) and not being able to leave an inheritance. Personally I like the idea of having assets in trust, as when we are older I don't want our kids or their partners holding undue influence over assets built up over many years. The creditors proection argument is a bit lame as anyone who offers credit to developers etc needs to control that very carefully. Trade creditors are always going to be last in the queue, and whether assets are in trust makes no difference, as the secured creditors will always be the priority, and you can bet they have charges over the trust assets.
My take on each of those reasons for establishing a Family Trust
1. Succession planning on farms
Hasn't the recent abolition of gift duty adressed some (most) aspects of this problem?
2. Protect against children's marital relationships going sour
Isn't the problem here actually a function of having a Trust - where beneficiaries of the assets in Trust are established prior to the death of the original owner(s) of the asset. Whereas without the Trust, then if a child's partner left whilst a simple will was in place (to cover inheritance issues in the future) there would be no problem?
3. Administration of funds for a dependent unable to administer their own affairs
A legitimate reason for establishing a Trust structure.
4. Mum and Dad's rest home changes
Agree. Why should the State (taxpayers) pay for the keeping of an elderly individual as a means to protect inheritances. If children want to protect their inheritance, they should look after Mum and Dad at their own (or Mum and Dad's) expense.
In short, a rort.
4. Children not having undue influence over the assets the parent's built up
Can this not be achieved by nominating a Power of Attorney (independent of your children if you so wish) to look after the use/maintenance of your assets in the event of your inability to do so yourself?
5. Creditors protection
Agree - a lame argument.
6. Trade creditors/secured creditors
Agree - no valid reason for having a Trust there.
My point being, aside from the disabled/incapable dependent - I somehow think the legal fraternity promotes Trusts to the average New Zealander for some unnecessary reasons, and then some rort reasons. More often the reason many NZers have taken up the Trust route has to do with the rort reasons (and there are more rorts than just the one you have mentioned above).
I always laugh at this scenario because it implies that the wife is a victim.
If the wife was so hung up on the money, then perhaps she should have worked a bit harder to make sure she kept her man.
Like everything in life you have to weigh up the risks. It seems to me that a lot sit back and enjoy the lifestyle the partner provides, but don't want to accept the obligations that come with it. Can work both ways, but more common that the husband is the breadwinner.
I have no wish to support the view of gold as a safe haven, as just like a bank a gold trader clips the ticket when the metal passes through them. There is also the very real risk of laws being passed or enacted to make it illegal for gold to be held privately.
But were I do agree is the fiat currencies have undermined the capitist system.
Limited liability is a tool used to promote enterprise, no problem there as the flow on effect is jobs.
However the risk/reward ratio has been completely distorted by money that is not backed by anything except faith.
When the world is awash with an excess of cheap money it leads to unacceptable risk taking.
It isn't actually capitalism anymore, and as such tools like limited liability or family trusts to protect invested capital are no longer relevant or appropriate. Lowering the threshold for limited liability is necessary to bring back some degree of caution.
The issue with family trusts is that they are not given the level of attention administratively they require. The trust industry has created a situation where trustees are not aware of their fiduciary responsibilities as documents are simply signed, often without even being read. i remember one talk I gave where 40% of the audience had NEVER read their trust deed.
I wrote a book on this a few years ago, which has been quoted as a source for the Law Commission report. Trusts are in effect a form of insurance against a future event. Managed well they are an important part of planning - the key is managing them well.
As a minimum there should be an annual meeting of ALL trustees with an agenda and minutes recorded. Where necessary financial accounts should also be prepared. All trustees should be involved in decision making and those decisions recorded.
It does not have to be onerous and often doesn't need to involve professionals - in fact, my opinion is key lawywers and accountants well away from trustee positions as many have no idea what it involves. Use them for professional advice to trustees as required.
It is likely many trusts will be successfully challenged over the coming years and I place a lot of responsibility on the advice (or lack of) clients received when setting their trusts up.
Trusts are in effect a form of insurance against a future event.
That's a very broad point. The question I had when the trust industry tried to hook us in was - exactly what sort of future event?
The member of the trust industry reverted to an emphasis on the use of them as a vehicle for tax minimisation, enabling access to student allowances for our children when they reached tertiary study age and avoidance of paying our own way when older and infirm.
All of which I found morally indefensible.
I like being a socially responsible member of society.
I tend to agree, many of the reasons for trusts are morally indefensible.
Some positive reasons I believe are protecting family assets for children in second relationships, protecting assets from property relationship claims, protecting against claims against estates, protecting personal assets from business risk - for instance fines for employee negligence not covered by insurance.
The list goes on and must be personalised to each case.
Who said anything about wanting to take away the right of anyone to manage their assets? I manage my assets very prudently, I think, without the aid of a trust.
I think the word you meant to say was "protect their assets" - and again, my question is "protect" from whom? In most cases it is "protect" from the government - which means "protect" from legitimate laws established under a legitimate democracy. I like NZ society. I like socialised medicine. I like no our no-fault accident insurance cover. I like schools that are centrally funded. I like freeway highways. I like free kindergarten and subsidised early childhood education. I like free ambulances and public funding of rescue services. I like we have a State administered superannuation scheme. And so on so forth. We all have to pay in accordance with our means to have such benefits associated with living here.
Kermit
You touch on the crucial point. How disconnected from the broad sweep of society do you want to be?
It's popular to say we (meaning me and my mates) shouldn't have to pay for them (meaning all those bludgers and beneficiaries).
But can you really say that and then feel relaxed about a group of people sinking into poverty.
Are you happy to drive or walk past 'them'?
The ultimate end of this road is gated communities and secession.
I saw this in stark terms in America when I visited in January.
Many homeless people used to stand at the traffic lights in suburban areas begging for money.
In many cities people with money didn't go into the cities and stayed in their cars. They drove from their gated communities to their campus offices on the fringes of town.
The only way the poor could get access was to beg at the lights when the cars were stopped.
That's not a country I want to live in.
Somehow we have to find a way to have a more equal society where everyone is included.
Separating yourself from government and the rest of society by not paying taxes can never end well.
cheers
Bernard
ctnz, if you re-read Kermit's first post he said;
Just because you want to be a socialist doesnt mean the rest of us have to......
meaning he/she is against the socialistic aspects of NZ society (i.e. socialised medicine, education, health care, ACC, conservation, welfare net etc. etc.) and one assumes would prefer to shelter accumulated capital and perhaps income from the coercive (tax/asset) regime. What I find curiously ironic about many folks who don't like paying tax becuase philosophically they think individuals should make their own way in this world - but then they are the same folks who are happy to have the State look after them in their old age whilst sheltering these accumulated assets for the benefit of their own chidlren. Seems hypocritical.
No Kate I am against people with views such as yours who believe somebody else has more right to control my money / assets than I do. The Govt asks that I contribute to the running of this country and I willingly do so....in fact I go further in some instances.
Your post is based on supposition and couldnt be wider from the mark.
I also never said I dont like paying tax...Im more than happy to pay my share...
And as for making ones way in the world, perhaps if a few more residents of NZ chose to do that then we wouldnt need to borrow $300m per week ??????
Kermit - that's silly. I don't think I have any right to control your money/assets - but I do believe in the legitimacy of our democratic government, even though not all their individual laws are necessarily in my personal interest. That's the basis of democracy.
NZ's coercive (tax) regime is largely based on progressive tax rates on incomes. And the "trust industry" seems to have grown out of all reasonable proportion from a growing number of citizens that are happy to pay "their share", as long as "their share" isn't considered too much by them as individuals. Hence, these individuals saw trusts as a way to minimise tax and shelter assets.
I do believe the scale of this problem does threaten our democracy. As Gareth Morgan pointed out to a room full of lawyers and accountants - his "Big Kahuna" would put them all out of work.
And a succession of legitimate, democratic Govts have deemed that the use of Trusts for legal means is acceptable.
Good of you to mention Gareth....perhaps if he spent less time tiki-touring the world on his bike my Kiwisaver fund might actually start performing ??????
Bernard me old mate....you are drawing an incredibly long bow there.
Where did I say I wanted to use my Trust to avoid tax ?
I like to think we work hard. My wife and I have been fortunate enough to get ourselves into a position where we have most of the things in life we want. When our time is up we want our kids to benefit...not somebody elses. We want the right to have control of our assets - not some misguided socialist.
I have been through a messy breakup. She went in with a car, I went in with 2 properties, car , boat and some cash. If those assets (all acquired before I entered into the relationship) were not in Trust I would have been relieved of half of them 2 1/2 years later. As it was her Lawyer tried and failed to bust my Trust open.
The problem is not that Trusts are used...it is that a minority are misused. There are valid reasons to have a Trust...but that seems to be conveniently overlooked.
And at the end of the day if you feel that badly about poverty and the need for all of us to be equal perhaps you should sell your house in Mt Eden, give the money to the Sallies and go renting.
Time for a beer.
As you can see from my post I have no problem playing my part...going beyond what I am obliged to do (did you see the word donations at all ?)
if you feel that badly about poverty and the need for all of us to be equal
This is the classic strawman argument against progressive taxation.
You only need to look at the widening gap between the haves and the have nots around the world. No progressive tax regime aims to make everyone financially equal. Social equity (not equality) is a better term for what progressive taxation within a welfare state aims to achieve. If one wanted government which made everyone equal - then one would implement a coercive regime relating to capital accumulation and labour rates. No democratic government to my knowledge is aiming to do that.
Kermit, if you read my post at
by Kate | 25 Mar 11, 11:45amyou will see that I accept some reasons for establishing trusts as being necessary/advantageous - the example there being as a means to administer an inheritance for an incapable, dependent adult/child.
I would similarly accept that establishing charitable trusts as a valid purpose. It's the "protective" (i.e. income/asset sheltering) trusts that I and the Law Commission are generally concerned with.
Kate. You "accepted" one reason.
You might think it ok for something that somebody has worked hard for to fall into the hands of somebody who has no right to it. I dont.
However I need to be clear - I do agree that something needs to be done to stop the use of Trusts (and other entities for that matter) for unethical/undesireable purposes (ie harbouring ill-gotten gains) ...a property on a hill above Aucklands waterfront springs to mind. Having said that there are generally legislative provisions to deal with these things...it just needs the relevant authorities to do their job properly.
You might think it ok for something that somebody has worked hard for to fall into the hands of somebody who has no right to it. I dont.
Kermit, if you are referring to establishing a trust to alleviate matters associated with the Property (Relationship) Act, my position on that (as above) was that it would have been better for society (and the legal fraternity) to have moved more in the direction of contract law (i.e. prenups - a contact between two consenting adults) as opposed to sheltering via Trust Law.
I'm with Ant on that - if one can "shelter" for good intentions, one can also "shelter" for not so good intentions. therein lie the problem.
The builder who did our extension was recently sued for $600K for a leaky building. At the time he was in a partnership arrangement with another builder, who did all the work on the property in question. When the owners of the property came to sue they went after our builder because he was the easiest target. They had to sell the family home to settle. Now his wife has developed a stress disorder and his eldest son has depression. Should his wife have lost her life time contribution to the family home? The claimants took the settlement and sold the property as is banking a tidy little profit.
There is "law" and natural justice what I am seeing isnt natural justice / fairness.....the very well off not only dodge tax ie dont pay their fair share od PAYE levels but even claim WFF.....
Im in that band that doesnt earn enough to make it possible to pay for an accountant or a lawyer and above WFF so its a bit of a struggle....I pay the full tax....
Two things, I thank my lucky stars I have the ability to earn a pretty decent wage so I consider Im better off than those on lower $ yet second I see ppl who effectively are better off than me not just because they have a better paid job, but as the same time they can get WFF and pay lower tax rates because they earn that much more, sorry but trusts seems to be one such way that is achieved so they have to go.
Dont blame me for wanting that gone blame the abusers of the principle's of trusts for spoiling it for real users.
regards
Matrimonial property law - If you live with someone (even on and off) for two years they get half of all your stuff. If you have any assets and you have even a minor relationship you need a trust or you have no asset protection.
Unfounded law suits - In the building industry it has become common to sue for 'leaky houses' whether or not they leak knowing that the victim faced with a $50k legal costs to defend themselves and then another $50K in legal costs to recoup their costs is likely to just settle (or is forced to settle by their insurers). There is no point in being in business when there are lawyers who will sue you simply because they percieve you may have assets they can get at.
No proportional liability in NZ - if you are found to .00001% responsible for a problem in a building and are the only person with assets you have to pay 100% of the costs. If you are say an electrician who fitted a single external security light onto the outside of a 'leaky' building which is being reclad at a cost of $4million (leaky building work is usually inflated by 4x) and you're the only person with assets you get the bill for $4M.
Basically without asset protection afforded by trusts there is no point in being:
1) in a relationship
2) in business
3) a professional of any type (except a lawyer)
What a great country NZ would be if everyone was either a single lawyer or a benifciary.
At last someone with an appreciation of risk in our legal structure and in business. Telling how many people here actually seem to have limited or no exposure to the real risks that can not be insured against or risk managed. Trusts have their place hopefully the informed will be involved in the chnage process.
It has not been possible, for years, to get PI insurance against anything water related on buldings - at any price. Usually when you design a building your drawings are taken and built by who knows who and construction may only been checked by some ignoramus from Council 3 or 4 times (no one wants to pay to have it checked properly). Who knows what has been changed or substituted or done shodily or what buiding standards might be changed...
.. however if anything goes wrong (or the standards change) in the next 10 years you are first in the firing line even if your documentation was perfect.
Would you bet all your assets that some builder you don't know being instructed by a client who knows nothing about construction and only checked a few times by a 'building inspector' who knows even less is going to do a perfect job?
Without asset protection you would be a complete idiot to have any involvement in the construction industry in NZ.
At last someone with an appreciation of risk in our legal structure and in business. Telling how many people here actually seem to have limited or no exposure to the real risks that can not be insured against or risk managed. Trusts have their place hopefully the informed will be involved in the chnage process.
When I saw this topic I thought it was very important to respond.
Trusts are an extremely important tool to protect against claims under the Property (Relationship) Act, which is a vicious little piece of legislation that hangs over the head of every New Zealander. While on the surface a 50:50 split of the relationship property seems eminently reasonable the devil is always in the details, and believe me there’s plenty of devil in this nasty little Act, made worse by case law (The Courts) perverting and twisting it into meanings and outcomes that Parliament had no intention of.
It’s probably well understood that you cannot have two marriages or civil unions at the same time. Not under this Act it’s not! Under this Act you can have two simultaneously qualifying relationships, e.g., a marriage and a defacto relationship. Or two simultaneous defacto relationships., i.e., a qualifying relationship with two different people at the same time. Given the perverse nature of this does it come as any surprise that Helen Clark considered this amendment as one of her best legislative achievements in Parliament that she is most proud of? Left-wing Feminazi social engineering at its most despicable and destructive.
And if you think this hasn’t opened the flood gates to gold diggers and ‘the other women’ to have a go in Court, no matter how weak their case, then think again. And what’s more you’re paying for it. It’s called Legal Aid!
When a relationship breaks up after 20-30 years, a 50:50 split on the face of it seems quite reasonable. But what about this situation? A person in their 40s, 50s or 60s enters into a new defacto relationship. They have a house and chattels which they have had for 20 years, whereas the other partner does not. The partner moves in. After 3 ½ years the relationships ends, as the partner was cheating. Guess what. Half the house and its chattels now belong to that partner. There is no argument about it that is the law. The Family Home and its chattels is relationship property no matter where it came from who supplied it or its history. So suck it up. Those bits and pieces you got from your mother or grandmother which the two of you have been using, but ultimately you want to pass on to your children or grandchildren, well half of them now belong to your ex-partner, not to you. Want to fight that in Court. Go for it. You’ll loose and I hope you have deep pockets. As a home owner you probably won’t qualify for legal aid, but your ex-partner will. They don’t ‘own’ a house, remember.
Guess who has been paying for a number of young Asian women immigrants to take the foolish old men they have been f***ing to Court claiming they were in a defacto relationship? You are! It’s called Legal Aid, stupid.
The only way any of this nonsense can be stopped and our primary and for most of us our most important asset is fully protected is by placing the family home and its entire chattels into a Family Trust long before the start of any relationship. Not after, because the Court will bust that trust wide open because those actions (intentional or otherwise it doesn’t matter) have had the effect of defeating the partner’s lawful claims under the Act.
Now before anybody here gets a rush of blood to the head and thinks that I have faced some of these situations let me assure you that that is not the case. This is knowledge I have built up over the years from the trials and tribulations of close friends, wider family and some colleagues over the years. And some of the things I have seen in relation to this act sicken me.
Abolish Trusts at your peril.
Contracting out agreements (prenups) – may work and they may not! Be very careful.
I've been through the wringer, a couple of times!, David B. And here's what I've learnt. It's not about 50+50 = 100; it's 100+100 = 100 So at 'official' attempt Mark 3, I still didn't use a Trust. I put everything into my new wife's name ( she had the 'nothing' bit at entry; I had it all). I take responsibility for the descisions I make; and if they're wrong - so be it. But deciding to 'give it all away' up front, makes one very sure that 'it's right' before going ahead. Not a choice eaily made by, or for, everyone. But it works for us :)
I can't remember the exact wording but I know that the effect of it is that in case of a split, starting over will mean just that. Whatever we have at that time would get split up between our kids instead of between us (not that they'd be able to use it until their majority but at least it'd be secured for them). Or something along those lines anyway. In other words they'd inherit early.
I think that Property (Relationship) Act is very bad legislation as well. Those issues aside however, it is the law and so yes, one has to plan for these possibilities.
Hence I do think that contracting out (prenups) would have been a much better way for society to respond given they are an agreement between two individuals and they are a "before" agreement as you so rightly point out.
The problem with trying to plan for such possible eventualities through Trusts is that they bring in many more individuals (i.e. trustees and beneficiaries) to the relationship "transaction". I have experience of parents with a Family Trust, for example, attempting to have a say in financial structuring of the relationships of their beneficiaries to ensure the Trust Deed operates as they had intended.
It just seems so much easier to me to decide the kids just split the dosh instead when you've carked it. :-)
If I was going to do (a substantial amount of) business with a Limited Liability Company I would want to obtain the personal guarantees of the Directors. Trouble is these days I cant find out if the directors have all their affairs hidden away in Family Trusts. There is no public record and published accounts of the affairs of these trusts. Now, in this modern day, if that were the case I would now want a guarantee underwritten by the trust and or trustees. It would be my first enquiry. I would check to see if the properties they are living in are in their own names. If not, and they wouldn't supply the trust-guarantee I would take my business elsewhere. Alternatively cash in advance.
An extremely valid point in terms of the way this has gone given our Companies and Trust law.
Before the Trusts-for-all explosion, what one did as a business owner was look each year to increase the amount of capital paid in the company such that other businesses dealing with you had enough confidence in you and your company such that a personal guarantee was considered unnecessary.
For some reason, we have lost sight of this business management/ownership ideal - now everyone seems to want to run a $100 paid up capital business, backed by personal assets (which in many cases are the profits - or what should be the retained earnings of the business) in trust. No one wants to have to manage their cashflow/business prudently it seems.
Sign of the times perhaps?
Kate, an argument could be that forms protection against future law changes.
ie bringing back death duties.
In addition in circumstances where risk is undertaken and limited liability is not sufficient, ie an unlimited personal guarantee for lending to start a business. Why add the risk of losing everything to start up a business that will employ New Zealanders?
But agree, watchin Hotchins on Close Up was ridiculous, claiming that his house was nothing to do with him as it was controlled by a trust.
It was sickening.
Fairfax, there is a simple way to plan to avoid death duty - give most of your assets and money away before you die.
Think of how much better this would be for society at large. Instead of hoarding it in later life - one would be putting it back into circulation where it could be invested in more productive activities.
That is a good idea - that way your family is guaranteed to never accumulate wealth. Death duties are the nastiest form of tax - the one that taxes wealth that has already been taxed and prevents the passing of wealth down through time. Every generation starts off at zero... seems fair.
Of course, the vast majority of the bovine populous is quite content to be milked at 45% of all they earn (30% tax + 15% GST). Its your civic duty to feed your masters after all.
Notice how the ones that object to people seeking to minimise the robbery are those with nothing of their own. If they can't have anything then tax people who have more than they do for why should those who work harder have a better life?
Why add the risk of losing everything to start up a business that will employ New Zealanders?
Exactly, start a business in comapany name , don't inject any capital, fund everything via your creditors and when it fails, walk away so the New Zealanders in the companies to whom you owe money loss their jobs and legitimate and honest business people lose their shirts (and homes).
If you are not prepared to risk your own capital when you start a business then don't expect other to risk theirs. You would be no better than a directors in some of the finance companies we could name.
A simplistic and narrow view - wrong on so many levels.
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It is interesting that Finance companies are the "Jews" of the times. When times were good people were happy to borrow their money, and invest in their ventures. Sure there were some bad apples - but are they any less corrupt and evil than other bankers?
Not really - they are just nice easy targets to parade before the camera, to dress in striped pajamas, and to send off in cattle trucks to the gas chambers to apease the masses.
[/aside]
There is risk in business. You put up capital to start the thing and then see if your idea flys. If it doesnt, and 9 of 10 do not, then you wind it up and try again. Investing in business is risky. It can result in losing 100% of your investment. If you can not face the prospect of this, then you should not invest. Keep your money under the matress.
I have done this 3 times now - the first 2 crashed and burned and my investors and i lost all of our startup money. The third time is working quite well, touch wood. I am very happy that my risk is limited to the money invested - as long as I act resposibly and legally there is a "limit" to my exposure.
I keep a close watch on my custimers credit lines - while not seeking guarantees from any. I refuse to deal with any business who demands additional security except for cash transactions. It is a choice I make on how I conduct my business. Risk is the nature of business - thats why it pays so much better than a job.
The finance companies I am relating to are those who were reckless and selfish with depositors money, treating those deposits like their own slush funds to fund their own activities without disclosing such to depositors.
(some of the lending done by some finance companies lacked any simple fundamentals like sole transactions in excess of their capital base, offshore lending with no ability to realise security, interparty loans not disclosed, the list goes on)
You simply can't relate your normal banker in a manistream bank as anything like this, as you say but are they any less corrupt and evil than other bankers.
Bank employees (except the very odd one) does not take deposit for the explict urpose of using funds for own gain.posit
There are those finance like UDC / Marac etc who operate solid ethical businesses which are not in the same league as those who have hit the wall. They stuck to what they knew and understood and did not compromise this in the face of a quick buck.
Yes we need peolple who are prepared to risk their capital in pursuit of higher returns and I have no issues with those and those who suceed have usually done their homework, have good business plans and have right level of capital from outset. For the hours and contribitionto their businesses they deserve the returns they do.
Its the ones who from outset set up their businesses with little to no capital, milk their creditors for all they can get, go off at banks when they wont lend unsecured to a business where the owners wont risk their own capital and when it all falls over say "well that business". Then they start again screwing a new bunch of people.
PS I have had a very good insight to the worlds of finance companies (the good ones) and corporate and commercial banking so are able to express these comments with a level of knowledge.
Several people have suggested trusts to counteract some bad laws (frivolous law suits, property(marraige) act, etc). But it is the these laws that should be addressed directly. Because if you can hide from these laws with a trust, you can hide from any responsibility, and thus have a free-pass to not pay what you owe. That's just wrong.
Personally I don't think trusts should be recognized. Neither should marraiges (a personal affair), corporations (a voluntary pooling of effort and reward), or nation states (an involuntary grouping for legal scope). Long ago someone sung "imagine there are no countries" and it suited me.
I personally don't recognize any person acting on behalf of other people without the express consent of all of those other people. That includes tax collectors and soldiers (who I mourn of their delusion). There are simply too many ways to avoid justice without direct reckoning.
But of course I am pragmatic and law abiding, and lucky enough to live in a country where damn near everybody treats everybody else with respect. It is thankfully rare that the fist in my imagination hones in on who is really responsible.
I don't agree with you there Kermit. When they start taking the 40+ age group away to fight then maybe you could have some credence to that claim, but when you take the young and gullible then no way. Soldiers are just the tool of an elite few to do their dirty work for them.
And before you respond consider that I have served.
I did not intend to defame soldiers. When a person in his heart believes that a great evil is being done, and needs to address it with physical force, along with his countrymen, in an organized way, this is noble. I salute those people.
When a soldier finds himself in Gaddafi's army, the defense of the official state of his home nation, and realizes his leader is killing his own citizens and damn near the rest of the world is trying to kill HIM for it, then something is seriously wrong... especially if he feels justified in kiilling rebel protesters because his leader told him to.
German soldiers broadly honored Hitler's horrific instructions. There is a point where you have to refuse your leaders.
In WWII, conscription applied to all New Zealand men aged between 18 and 46. That doesn't count the men who were older than that who volunteered for service or who were already in the army, navy, air force etc, or in the merchant marines, many of who saw active service well into their 50s and 60s.
I consider your glib smart-alec comment above to be not only incorrect in fact but to be fatuous and self-serving.
Self serving is eactly what it is, but I guess you can't see that.
I can't see how it is justified to kill another human being not matter what the circumstances, but I guess some are morally bankrupt in that regard.
There were also plenty that objected to killing others.
Trusts are a very easy way for devious and non responsible parents to avoid paying child support.
I know, I get $15 a week for each child but my ex is worth around $3mill.
Sad but true.
There are thousands of us in this situation, it is criminal, and shameful.
NZ children are the losers, and in the end its the tax payer that pays once again.
A mum on a low income, with low child support coming in means more handouts......when the father can pay $15, own the clothes he stands up in, plus a few toys and mansions.....
sooner they change the trust laws the better.
The adult world is a strange game, children are often the losers!!!
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