Asset structuring with a move to retirement living

Bill and Jane were in their early 70s. They had been living in their house in Takapuna for 35 years and that is where they had brought up their children. They had run a very successful business which they sold ten years ago. Initially they had the sale proceeds in term deposits but because of the low interest rates those moneys were now invested in managed funds.

Bill and Jane’s house had increased hugely in value since the time they bought it in the late 1980s. It still bewildered them to think that the house was worth so much more than the business had been when they sold it. They had worked so hard in the business and yet with the family home all they had to do was to continue to own it. The house and the managed funds were both in a trust which had been established when they had their business. Bill and Jane were the beneficiaries of the trust together with their three daughters and their children. The trustees were Bill and Jane and their accountant.
Bill and Jane had decided that they might move into a retirement village. The house in Takapuna had been getting too much for them. The grounds were extensive (they were one of the few sites which had not been sub divided) and the stairs were starting to get a bit much for Bill who had had a knee replacement. They had friends who were in a retirement village on the shore. They loved it and raved about the lifestyle they now had. Bill and Jane discussed this with their daughters, spent many weekends looking at the different villages and finally settled on one.
Bill and Jane were told that they needed to get legal advice on the occupation right agreement. They went to see their lawyer, who they had needed to visit infrequently since the sale of the business. She said that they should take the opportunity to review their wills and their trust documents at the same time. However, she said that trusts had become quite a specialty area and she thought it would be a good idea to get some expert advice. She referred them to a lawyer who specialised in trusts.
When they went to see the lawyer, she explained that trust law had changed quite a lot since they set their trust up in the mid 1990s. Back in the 1990s, trusts would often have extensive beneficiary lists. This would often include spouses and de facto partners. When the lawyer looked at Bill and Jane’s trust deed, she saw that not only were their children's and grandchildren’s partners and spouses potential beneficiaries, but also any carers for those people. This would include the nanny of their eldest daughter’s children. The lawyer said this wasn’t necessarily a common inclusion, but she had certainly seen this before. Clearly this is not what Bill and Jane had intended when they set the trust up.
Bill and Jane were particularly concerned as their youngest daughter was going through a messy divorce and it was a worry to them that her ex-husband was a beneficiary of the trust. Unfortunately, the lawyer said, that given the age of the trust, there was no power to remove beneficiaries. She said that sometimes in these cases the trust deeds could be varied to include a power to remove beneficiaries which could then be exercised. But again, in their case there was no power to vary the trust deed. The only options open to them were to resettle the trust which meant setting up a new modern trust with a smaller class of beneficiaries and settling the assets onto that trust or winding the trust up and put everything back into their names.
Bill was reluctant to wind up the trust given the effort and cost of setting the trust up and maintaining it over the years. However, the lawyer advised them that the right to occupy the villa in the retirement village wasn’t able to be owned by the trust in any event, and now that they didn’t have the business risk or any obvious family issues that would necessitate a trust, winding it up would be the sensible option. She said that the trust had done its job and they could still protect their daughter’s inheritance with well-crafted wills.
So, Bill and Jane agreed to wind their trust up and put in place new, more extensive wills. They sold their Takapuna home, and purchased the occupation right to a villa in the retirement village. The balance of funds from their Takapuna home were added to their managed funds which were now just in their own personal names, which meant that their tax returns were more straightforward and there was no need to go to the extra cost of preparing a set of accounts for the trust annually.  
Bill and Jane were very happy with the outcome, still understanding that their trust had done a great job for them and given them peace of mind when they needed it.  

Tammy McLeod, Managing Director, Davenports Law

Issue 127 February 2022