Couldn't find a relevant thread so though this one would be the best - hopefully...

My husband is a beneficiary of a family trust along with his younger sister and older brother. The older brother is also a trustee along with their mum and dad.

The trust was set up around 20 years ago when the oldest son suggested they sold their family home so they could lend the proceeds of the house sale to him after his marriage dissolved and he lost his home and wanted to buy another. The son paid a pittance in interest to the trust and over the following 10 years the mum and dad lived in a motor home and spent all the interest paid to the trust.

Around 10 years ago mum and dad needed to have a home to live in due to their old age (their in their 80's) and health and the trust bought a house which resulted in the original loan to the son having to being repaid and a small mortgage being taken out by the trust for the balance of the house purchased.

Over the past 10 years mum and dad have paid off the mortgage, through rent payments to the trust and with the help of family gifting money to them recently and now mum and dad are selling the house to move to a retirement village to an apartment they are purchasing.

There will be an amount of money left over from the house sale of around $300k and mum and dad plan on spending this to supplement their pension.

Question is... does this $300k not still belong to the trust and it should be paid into the trusts bank account?

And should mum and dad have access to it to spend willy nilly until it is all gone thus depriving their beneficiaries?

kayr - 2021-10-02 11:02:00

'depriving their beneficiaries'? Is it or is it not their money in the first place? It seems that at least one beneficiary has taken advantage of that money already doesn't it?

susiesilver - 2021-10-02 11:31:00

Hot take: if I lend you $ 10 to buy a lottery ticket and you win, is that my million dollars or yours?

sparkychap - 2021-10-02 11:49:00

If none of the beneficiaries have put money into the trust then they are not being deprived of anything.

loud_37 - 2021-10-02 12:03:00

kayr wrote:

...And should mum and dad have access to it to spend willy nilly until it is all gone thus depriving their beneficiaries?

You've already said the eldest brother is one of the trustees so I don't agree with your statement that they have willy nilly access. If they didn't have a trust at all then they could have been doing as they pleased with the fruits of their labour all along.

gyrogearloose - 2021-10-02 12:28:00

The proceeds may legally belong to the trust but morally they belong to Mum and Dad who look to be the only ones that contributed to the trust. It also looks like the oldest trustee has already had his "pound of flesh" out of the trust anyway. I don't think that Mum and Dad spending "willy nilly" will deprive the trustees of anything they are morally entitled to, the current house will still be there. The amount of "family gifting" to the parents to pay off the mortgage is unstated, it could be a lot, it could be bugger all but if you want to count it against the parents it's hardly a gift.

skull - 2021-10-02 12:34:00

kayr wrote:

Couldn't find a relevant thread so though this one would be the best - hopefully...

My husband is a beneficiary of a family trust along with his younger sister and older brother. The older brother is also a trustee along with their mum and dad.

The trust was set up around 20 years ago when the oldest son suggested they sold their family home so they could lend the proceeds of the house sale to him after his marriage dissolved and he lost his home and wanted to buy another. The son paid a pittance in interest to the trust and over the following 10 years the mum and dad lived in a motor home and spent all the interest paid to the trust.

Around 10 years ago mum and dad needed to have a home to live in due to their old age (their in their 80's) and health and the trust bought a house which resulted in the original loan to the son having to being repaid and a small mortgage being taken out by the trust for the balance of the house purchased.

Over the past 10 years mum and dad have paid off the mortgage, through rent payments to the trust and with the help of family gifting money to them recently and now mum and dad are selling the house to move to a retirement village to an apartment they are purchasing.

There will be an amount of money left over from the house sale of around $300k and mum and dad plan on spending this to supplement their pension.

Question is... does this $300k not still belong to the trust and it should be paid into the trusts bank account?

And should mum and dad have access to it to spend willy nilly until it is all gone thus depriving their beneficiaries?

it belongs to mum and dad. Mum and dad should see their lawyer to ensure they get what's theres. Its the short version of the long version of what everyone else will express shortly.

gabbysnana - 2021-10-02 12:35:00

Rereading, if the trust bought the house (it only lent money to the brother) then the proceeds belong to the trust and the parents shouldn't be buying anything with the proceeds.

sparkychap - 2021-10-02 12:41:00

It was not stated that the trust purchased anything. The parents sold their own house and the proceeds went to the trust for the purpose of lending money to son #1. The only funds in the trust were put there by the parents. Your interpretation may be legally correct, if that's the case I would choose to treat my parents morally correctly.
Correction to my first post....the 2nd house will not still be there, that's where the 300k came from.

Edited by skull at 12:58 pm, Sat 2 Oct

skull - 2021-10-02 12:55:00

'And should mum and dad have access to it to spend willy nilly until it is all gone thus depriving their beneficiaries'

Sad.

rhys12 - 2021-10-02 13:51:00

From the information given, which isn’t altogether clear, I’d say the sale proceeds belong to the trust if the trust owns the property which will be pretty clear from the Record of Title. It really depends who the beneficiaries are as opposed to the discretionary beneficiaries and the wording of the Trust Deed but the Trust could make a distribution to the beneficiaries if all the trustees agree.

As an aside, if the Trust hasn’t been reviewed in the 20 years since it was settled then now would be a good time - it may no longer be fit for purpose but even if it is the legislative changes in Trusts Act 2019 have changed how beneficiaries and discretionary beneficiaries are kept informed

Edited by sarahb5 at 1:58 pm, Sat 2 Oct

sarahb5 - 2021-10-02 13:57:00

skull wrote:

It was not stated that the trust purchased anything. .

.

kayr wrote:

Around 10 years ago mum and dad needed to have a home to live in due to their old age (their in their 80's) and health and the trust bought a house

.

sparkychap - 2021-10-02 14:30:00

skull wrote:

It was not stated that the trust purchased anything. The parents sold their own house and the proceeds went to the trust for the purpose of lending money to son #1. The only funds in the trust were put there by the parents.

The problem is that once they transferred funds to the trust, the funds weren't theirs anymore. And it may be poor wording from the OP but the parents can't buy a retirement flat in their own names, only the trust, and the balance belongs to the trust, not them.

However, if they then spent 10 years in a motorhome so the son could get a home after his divorce, I reckon they deserve a happy last few years and the OP sounds entitled.

sparkychap - 2021-10-02 14:37:00

Listen to sarahb5, she is onto it and knows her stuff. excellent.

msigg - 2021-10-02 14:53:00

sparkychap wrote:

The problem is that once they transferred funds to the trust, the funds weren't theirs anymore. And it may be poor wording from the OP but the parents can't buy a retirement flat in their own names, only the trust, and the balance belongs to the trust, not them.

However, if they then spent 10 years in a motorhome so the son could get a home after his divorce, I reckon they deserve a happy last few years and the OP sounds entitled.

Yes I thought OP sounded entitled as well but thought it a bit unfair to say it as harsh as that. We aren't privy to the whole story. Out of them all I think son #1 has been onto a good thing. Living in a motor home themselves to enable helping one of their children doesn't seem to be to indicate they are the sort of folks to be frittering away the 300k balance on unnecessary purchasing. At the end of the day they are in their 80's now and will probably looking to live a very quite life.

skull - 2021-10-02 15:10:00

msigg wrote:

Listen to sarahb5, she is onto it and knows her stuff. excellent.

Thanks ????

sarahb5 - 2021-10-02 15:35:00

If, when, they need to move into care, and they have been spending trust funds "willy nilly" as their own, then possibly this will cause a problem.

This is a matter for a lawyer to advise them carefully.

bitsy_boffin - 2021-10-02 16:22:00

Is this clearer?...The trust was started with the sale funds from the family home 20 odd years ago. These funds were lent to the #1 son who is also a trustee.
The trust then bought a house with a small mortgage and #1 son repaid the loan back to the trust to enable the purchase.
Mum and dad paid rent to the trust to cover the mortgage and keep of the trust's property (rate's, insurance etc) and small gifts from family and an inheritance were also used over the past 10 years to recently clear the mortgage a few years ago.

Regarding my original post.....mum and dad are selling the house to move to a retirement village to an apartment they are purchasing.

I should have said... The TRUST is selling the house to purchase an apartment in a retirement village for mum and dad to live in - if that makes any difference?

The $300K is the balance of capital gain the trust has made from the most resent house sale that the trust owned.

I read somewhere (but cant find it now) that all but the initial amount that the trust was set up with plus interest if any, could be reversed from the trust back to the settlors but any amount over this ie capital gains, belongs to the trust to be eventually distributed to the beneficiaries. In the mean time the trusts funds cannot be spent by anyone including the trustees (mum and dad) unless it is for funding the trust ie costs to maintain the retirement apartment the trust bought and fees relating to the trust/apartment.

I am concerned that 2 of the 3 the beneficiaries will not get a fair and equal entitlement due to the trustees actions as one of the trustees who is also a beneficiary is behind the wheel so to speak and has been benefiting unfairly from the trust from the start.

Also, a question regarding this comment from sarahb5 ...... Trusts Act 2019 have changed how beneficiaries and discretionary beneficiaries are kept informed.
What/how are the beneficiaries kept informed?
The other 2 beneficiaries have never been kept informed of anything. Are the Trustees suppose to provide information/documents to the beneficiaries or does the beneficiary have to request from the trustees before it is provided?

kayr - 2021-10-02 16:53:00

skull wrote:

Yes I thought OP sounded entitled as well but thought it a bit unfair to say it as harsh as that. We aren't privy to the whole story. Out of them all I think son #1 has been onto a good thing. Living in a motor home themselves to enable helping one of their children doesn't seem to be to indicate they are the sort of folks to be frittering away the 300k balance on unnecessary purchasing. At the end of the day they are in their 80's now and will probably looking to live a very quite life.

For your clarification..... I'm not 'entitled', I'm not a beneficiary to this trust and I'm also not personally/financially concerned if there ends up no money in the end as my husband (who is the beneficiary) and I do not need to be concerned about money due to being self made as we have worked hard and made sure we have invested in our future to be able to enjoy a worry free retirement and not have to rely only on government super nor do we expect our children to have the burden of looking after us financially in our old age as we have done for both our own parents due to their poor decision making which was often influenced by others.

kayr - 2021-10-02 16:56:00

kayr wrote:

Is this clearer?...The trust was started with the sale funds from the family home 20 odd years ago. These funds were lent to the #1 son who is also a trustee.
The trust then bought a house with a small mortgage and #1 son repaid the loan back to the trust to enable the purchase.
Mum and dad paid rent to the trust to cover the mortgage and keep of the trust's property (rate's, insurance etc) and small gifts from family and an inheritance were also used over the past 10 years to recently clear the mortgage a few years ago.

Regarding my original post.....mum and dad are selling the house to move to a retirement village to an apartment they are purchasing.

I should have said... The TRUST is selling the house to purchase an apartment in a retirement village for mum and dad to live in - if that makes any difference?

The $300K is the balance of capital gain the trust has made from the most resent house sale that the trust owned.

I read somewhere (but cant find it now) that all but the initial amount that the trust was set up with plus interest if any, could be reversed from the trust back to the settlors but any amount over this ie capital gains, belongs to the trust to be eventually distributed to the beneficiaries. In the mean time the trusts funds cannot be spent by anyone including the trustees (mum and dad) unless it is for funding the trust ie costs to maintain the retirement apartment the trust bought and fees relating to the trust/apartment.

I am concerned that 2 of the 3 the beneficiaries will not get a fair and equal entitlement due to the trustees actions as one of the trustees who is also a beneficiary is behind the wheel so to speak and has been benefiting unfairly from the trust from the start.

Also, a question regarding this comment from sarahb5 ...... Trusts Act 2019 have changed how beneficiaries and discretionary beneficiaries are kept informed.
What/how are the beneficiaries kept informed?
The other 2 beneficiaries have never been kept informed of anything. Are the Trustees suppose to provide information/documents to the beneficiaries or does the beneficiary have to request from the trustees before it is provided?

Yes - the legislation explains better than I can

https://www.legislation.govt.nz/act/public/2019/0038/latest/
DLM7382940.html

sarahb5 - 2021-10-02 16:57:00

sarahb5 wrote:

Yes - the legislation explains better than I can

https://www.legislation.govt.nz/act/public/2019/0038/latest/
DLM7382940.html

Thanks for that.

kayr - 2021-10-02 17:05:00

I'd start with the Trust Deed and go from there. Are the parents even beneficiaries?

It sounds like the Trust is non-compliant so that will need addressing asap.

Edited by johnston at 5:21 pm, Sat 2 Oct

johnston - 2021-10-02 17:20:00

johnston wrote:

I'd start with the Trust Deed and go from there. Are the parents even beneficiaries?

It sounds like the Trust is non-compliant so that will need addressing asap.

No only their 3 children are beneficiaries, one of whom is also a trustee.

kayr - 2021-10-02 17:29:00

kayr wrote:

No only their 3 children are beneficiaries, one of whom is also a trustee.

Is there a variation clause in the Trust Deed?

johnston - 2021-10-02 18:09:00

kayr wrote:

No only their 3 children are beneficiaries, one of whom is also a trustee.

That’s not unusual but it is unusual for the settlors (mum and dad) not to also be beneficiaries especially since the trust has effectively bought them a property. Have a any variations to the trust deed been executed or trustee resolutions to support any variations?

You may not need the money but that’s not enough reason to not consult your lawyer about how this trust is being managed.

sarahb5 - 2021-10-02 18:18:00

On the information so far, the trust cannot give mum and dad any of the sale proceeds.

If the Deed allows the trust could be varied. Or the trust wound up and the beneficiaries give mum and dad the money.

johnston - 2021-10-02 18:40:00

If the trust deed was written up correctly mum and dad should have been the main beneficiaries with consideration being given to the children.

laurelanne - 2021-10-02 18:42:00

laurelanne wrote:

If the trust deed was written up correctly mum and dad should have been the main beneficiaries with consideration being given to the children.

If being the big issue

sarahb5 - 2021-10-02 18:49:00

laurelanne wrote:

If the trust deed was written up correctly mum and dad should have been the main beneficiaries with consideration being given to the children.

That is not necessarily the case here or in a surprising number of other trusts.

johnston - 2021-10-02 18:58:00

If 'mum and dad' aren't beneficiaries of the trust, they actually don't and shouldn't of had any benefit from the trust's activities. Having been set up so long ago, it could also probably mean that they may be entitled certain financial assistance when it comes to elder care as it would not be an asset or provide an income to them. Certainly sounds that some legal consultation is required - especially to the Trustee's so that their legal position is not compromised with respect to how the Trust is being administered and distributed.

brouser3 - 2021-10-02 21:14:00

brouser3 wrote:

If 'mum and dad' aren't beneficiaries of the trust, they actually don't and shouldn't of had any benefit from the trust's activities. Having been set up so long ago, it could also probably mean that they may be entitled certain financial assistance when it comes to elder care as it would not be an asset or provide an income to them. Certainly sounds that some legal consultation is required - especially to the Trustee's so that their legal position is not compromised with respect to how the Trust is being administered and distributed.

My parents put their property into a trust for us on the condition that we built them a new unit (20 years ago). Mum passed away and eventually dad ended up in a rest home. If we rented the unit out, we would have had to pay the money towards his stay at the rest home. Mum and dad were not beneficiaries of the trust, only settlors

Edited by catwoman1974 at 5:47 am, Sun 3 Oct

catwoman1974 - 2021-10-03 05:44:00

brouser3 wrote:

If 'mum and dad' aren't beneficiaries of the trust, they actually don't and shouldn't of had any benefit from the trust's activities. Having been set up so long ago, it could also probably mean that they may be entitled certain financial assistance when it comes to elder care as it would not be an asset or provide an income to them. Certainly sounds that some legal consultation is required - especially to the Trustee's so that their legal position is not compromised with respect to how the Trust is being administered and distributed.

We didn't owe the MOH one single cent with dad going into a rest home - trust was set up 20 years ago

catwoman1974 - 2021-10-03 05:54:00

catwoman1974 wrote:

We didn't owe the MOH one single cent with dad going into a rest home - trust was set up 20 years ago

Just as well your parents didn't need the money during their lifetimes.

Others should be aware that non renting a property that you have a legal or beneficial interest in is seen as depriving yourself of income and assessed accordingly.

Edited by johnston at 10:03 am, Sun 3 Oct

johnston - 2021-10-03 09:57:00

johnston wrote:

Just as well your parents didn't need the money during their lifetimes.

Others should be aware that non renting a property that you have a legal or beneficial interest in is seen as depriving yourself of income and assessed accordingly.

Back when setting up family trusts was very popular I think there were more than a few that were set up that probably shouldn’t have been set up the way they were - maybe due to inexperience or lack of understanding. This is exactly what the Trusts Act 2019 is trying to fix - Trusts should be reviewed regularly just like your Will and Memo of Wishes but until the changes were introduced with the new legislation this just didn’t happen. Like anything you spend money on it has to be fit for purpose - you wouldn’t buy a mini if you had 6 kids because it wouldn’t be practical and a trust needs to be practical for the current and future needs of the beneficiaries.

sarahb5 - 2021-10-03 10:11:00

Absolutely, sarahb5, and many were set up in the false impression that it was just a tax avoidance thing and people were shocked to discover they actually no longer owned the asset put into the trust.

sparkychap - 2021-10-03 10:18:00

sparkychap wrote:

Absolutely, sarahb5, and many were set up in the false impression that it was just a tax avoidance thing and people were shocked to discover they actually no longer owned the asset put into the trust.

Yep - we still have clients who think the “trust fund” is like a bank account

sarahb5 - 2021-10-03 10:20:00

kayr wrote:

...
And should mum and dad have access to it to spend willy nilly until it is all gone thus depriving their beneficiaries?.....

Wow, this actually makes me really sad.

desi1969 - 2021-10-03 15:07:00

desi1969 wrote:

Wow, this actually makes me really sad.

However, the money was not theirs to spend. Point taken though.

Edited by johnston at 3:28 pm, Sun 3 Oct

johnston - 2021-10-03 15:27:00

johnston wrote:

Just as well your parents didn't need the money during their lifetimes.

Others should be aware that non renting a property that you have a legal or beneficial interest in is seen as depriving yourself of income and assessed accordingly.

We gave them extra money

catwoman1974 - 2021-10-03 17:04:00

Putting property into a trust is a complete waste of time these days. It would take 100+ years of gifting to secure a property

catwoman1974 - 2021-10-03 17:05:00

catwoman1974 wrote:

Putting property into a trust is a complete waste of time these days.

Nonsense. While many trusts are unnecessary or no longer relevant it does not mean trusts are a waste of time. Your comment merely illustrates a general misunderstanding about trusts.

johnston - 2021-10-03 17:26:00

catwoman1974 wrote:

We gave them extra money

Which was once their money.

johnston - 2021-10-03 17:27:00

johnston wrote:

Nonsense. While many trusts are unnecessary or no longer relevant it does not mean trusts are a waste of time. Your comment merely illustrates a general misunderstanding about trusts.

And gifting in particular

sarahb5 - 2021-10-03 17:36:00

catwoman1974 wrote:

Putting property into a trust is a complete waste of time these days. It would take 100+ years of gifting to secure a property

A family trust cannot “exist” for more than 80 years - you may find this summary of how trusts work (or should work) interesting

https://www.lawsociety.org.nz/for-the-public/common-legal-is
sues/the-family-trust/

sarahb5 - 2021-10-03 17:37:00

catwoman1974 wrote:

Putting property into a trust is a complete waste of time these days. It would take 100+ years of gifting to secure a property

oh dear, things have changed, do keep up.

sparkychap - 2021-10-03 17:38:00

sparkychap wrote:

oh dear, things have changed, do keep up.

Yep ya right there. 2001, gifting was about $24K PA and property prices were about $200K. Now, gifting is about $10K PA and property prices are $1M

catwoman1974 - 2021-10-03 19:44:00

Where did you get gifting at $10KPA from. That's new to me.

laurelanne - 2021-10-03 19:46:00

laurelanne wrote:

Where did you get gifting at $10KPA from. That's new to me.

It seems they changed it again, can't keep up with this government and their changes

catwoman1974 - 2021-10-03 19:53:00

catwoman1974 wrote:

Yep ya right there. 2001, gifting was about $24K PA and property prices were about $200K. Now, gifting is about $10K PA and property prices are $1M

What is this "gifting is about $10K PA" you're talking about?

sparkychap - 2021-10-03 19:55:00

catwoman1974 wrote:

It seems they changed it again, can't keep up with this government and their changes

The changes aren’t new - did you read the information in the link I posted? I think it’s about 10 years since gift duty was repealed. If you have a trust and you didn’t know this then you really need to review your trust in case there are other pertinent changes you don’t know aboutb

Edited by sarahb5 at 7:58 pm, Sun 3 Oct

sarahb5 - 2021-10-03 19:56:00