Meet Richard and Becks

Happily married nearly 50 years and now both in their 70s, Richard and Becks were beginning to think about the next stage of life. The retirement village lifestyle was becoming more and more appealing. The family home they had lived in for 35 years had outgrown them. Their girls were grown, the full section was starting to feel unmanageable and the stairs were a bit much for Richard since his knee replacement. They had a few friends who had made the transition and were absolutely raving about it. Richard and Becks discussed all this with their daughters, becoming more keen. They spent many weekends touring the different villages and finally settled on the perfect one.

Richard and Becks were well-positioned financially. They had built a very successful business which they sold ten years prior, first investing the sale proceeds in term deposits and now managed funds. And of course, their Takapuna home had increased hugely in value since they bought it in the late '80s. The house and the managed funds were both in a trust, established back when they owned their business. Richard and Becks were the beneficiaries of the trust together with their three daughters and their children. The trustees were Richard, Becks and their accountant.
In anticipation of their big move, Richard and Becks went to their lawyer to seek advice on the Occupation Right Agreement. She had helped them immensely with the establishment of the trust and sale of the business, but they hadn’t had much reason to visit in the last few years. She advised they take this opportunity to review their wills and trust documents at the same time. She explained that trusts had evolved over the years, becoming quite a specialty area. She referred them on to a lawyer who specialised in trusts for expert advice.
The specialist explained that trust law had changed quite a bit since they set up theirs in the mid '90s. At that time, it was common for trusts to have extensive beneficiary lists. This would often include spouses as well as de facto partners. When the lawyer looked at Richard and Becks' trust deed, he saw that not only were their children and grandchildren’s partners and spouses potential beneficiaries, but also any caregivers for those people. This would include the nanny of their eldest daughter’s children. The lawyer said this wasn’t a common inclusion, but he had certainly seen it before. Clearly this is not what the couple had intended when they set the trust up.
Richard and Becks were particularly concerned about their youngest daughter who happened to be going through a messy divorce. They didn’t like the idea that her ex-husband was a beneficiary of the trust. Unfortunately, the lawyer informed them that due to the age of the existing trust, there was no way to remove beneficiaries.
He 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 closing out the trust and putting everything back into their names.
Richard was reluctant to wind up the trust given the cost and effort of setting it up and maintaining it for decades. 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. Furthermore, now that they didn’t have the business risk or any obvious family issues necessitating a trust, winding it up would be the most sensible option. The trust had done its job and they could still protect their daughters’ inheritance with well-crafted wills.
Richard and Becks took the advice. They wound up their trust and put in place new, more extensive wills. They sold their Takapuna home, purchasing the occupation right to a lovely villa in the retirement village. The balance of funds from the sale were added to their managed funds, which were now held under their own names. Their tax returns became more straightforward, without the extra cost of preparing annual accounts for the trust. Richard and Becks were very happy with the outcome, still with the understanding that the trust had done its job for all those years — providing peace of mind when they needed it.  

Tammy McLeod, Managing Director, Davenports Law

Issue 131 June 2022