Property investors need be careful with family trusts

Friday 27 August 2010

Property investors need to take a more active role in overseeing their family trusts to ensure they are both compliant and achieving their objectives, according to New Zealand Trustee Services director Jonathan Cron.

By Sonia Speedy

He says at least three quarters of the trusts it sees are not compliant and run the risk of being over turned.

Cron says: "Trusts are being put under the microscope. The government is showing an increased interest in compliance and is looking at different options that are going to be available to them moving forward."

He points to a number of "red flags" property investors should watch out for around trust administration.

This includes ensuring decisions that affect a trust asset, such as signing off on a mortgage agreement, are recorded and also detail the power the trust has to exercise the decision.

This should be recorded, "not in the top two inches, but on a sheet of paper", Cron says.

It often sees situations where no minutes have been taken in relation to the trust, or have been prepared, but never executed, or are prepared retrospectively, he says.

"As far as we're concerned, everything needs to be in real time," he says.

Trust and personal financial dealings also need to be kept separate.

"We have instances where there is a trust bank account and their wages now go into it and all expenses are paid out of it," Cron says.

"We need to identify what the trust account is for and that is to hold income or receive income from an asset that is held by the trust and a lot of the time none of this is actually happening," he says.

Cron says property investors with family trusts in place need to take an active interest in them and not just rely on professionals to remind them what they should be doing.

"They've got to actually take the attitude that these are their assets and they've got to understand how this works," he says.

They also need to be mindful of why they created the trust in the first place, Cron says.

He suggests all investors should reassess the structure of their property portfolios in light of recent changes such as those made to the depreciation regime for property, to look at the options available to them.


Cron has a new book on family trusts - Family Trusts in New Zealand. This book is a complete guide to setting up and running a trust. More details in the Intelligent Investor Bookstore here

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