It might be best to wind up your trust

Cucumber consulting manager Ian Gray. Photo/Cucumber.

Trusts are increasingly coming under the scrutiny of government regulators and the courts, with the Law Commission recently recommending major changes to the law governing trusts, say lawyers and financial advisers.

"If you have a trust then it would be a really good idea for you to have it reviewed," said Martin Hawes, a financial adviser and author, who ran a seminar on trusts hosted by Tauranga law firm Cooney Lees Morgan last week.

Mr Hawes said that, while trusts were generally well structured, many of them were badly managed.

And he observed that for some people the reason for setting up the trust had not been well thought through, or was no longer relevant as result of past and proposed legal changes.

"I think some people should wind up their trusts," he said.

Owen Cooney, partner in Cooney Lees Morgan, said: "The proposed changes will mean that the focus for the future in relation to trusts - whether in the courts or by the legislators - is going to be on ensuring that trustees follow best practices."

The changes proposed by the Law Commission in September would be relevant to the tens of thousands of New Zealanders who use trusts to manage property and other assets, said Law Commission president Sir Grant Hammond when announcing the reforms. Estimates of the number of trusts in New Zealand range between 300,000 to 500,000.

A key factor originally driving the proliferation of trusts was the matrimonial property law changes in the 1970s and the Law Commission's brief included addressing the "injustice" of current laws that allow trusts to be used to avoid having to share property equally when couples separate.

Another key recommendation was that courts would be able to find that if the person who established a trust continued to manage the assets it held "as if they are their own personal property" then the trust would be found to have no legal standing.

"Actions always speak louder than words," said Mr Hawes.

"What you do in your actions in managing the trust might say more about your intention than the words in the trust deeds or your memorandum."

The law firm's seminar also included an overview of the Trust Fido software developed by Cucumber Consulting manager Ian Gray for Cooney Lees Morgan. Trust Fido provides an online platform for trustees to monitor all aspects of the trust's legal obligations.

The idea originally came about following the abolition in October 2011 of the gift duty restrictions, which had previously limited gift duty transfers to trusts to $27,000 per annum.

Once the law changed, trustees were no longer obliged to get together annually to sign off on the transfers, which created a potential risk that the trusts would no longer be managed properly, said Mr Gray.

"As professional trustees Cooney Lees Morgan didn't want to take on extra risk so they decided they needed a system that was easy to use for administrators and trust managers to monitor work flow with steps to ensure things were dealt with in a systematic way."

The software can be acquired from Cucumber by other law firms and adapted to their needs, said Mr Gray, who added that Cucumber was currently testing the market for interest.