You die before your children turn 20. Whether you've written a will or not, the money that goes to them will be held in trust until they're 20. And that can be mighty costly.
A reader estimated that five minors who benefited from her mother's estate will be charged about $180,000 in estate administration and investment fees by the time they turn 20, on bequests totalling $850,000.
In the reader's case, each child's trust was charged an $880 time-based trust set-up fee on top of the cost of administering the will, $500 plus GST for an investment plan, 1 per cent of the invested sum for "implementation", an annual trustees management fee of 0.2 per cent, an investment portfolio monitoring fee of 0.7 per cent of the amount invested, an investment management fee of 0.4-0.9 per cent and an annual $220 tax return fee. Each time a request is made for invoices, such as one for a school camp, there is an estimated time-based fee of $57.25.
Most of those types of fees would be charged one way or another on a testamentary trust managed by an accountant, lawyer or other trustee company. The reader, however, believes the Public Trust's fees are particularly high.
Her biggest complaint is that there is no oversight of the Public Trust, which handled her mother's will. Every time she complains about mismanagement of the estate administration, the trust's costs are deducted from the children's inheritance, which puts the trustee company in the position of power.
For every piece of paper or email there is a charge. "They know that you have nowhere to go to and so they treat you with disdain," she says.
Like most things in our financial lives, there are risks galore with wills and trusts. Get it wrong and the money could be whittled down unnecessarily after death. For example, says lawyer Ross Holmes of Ross Holmes Trusts, appointing a guardian of the child as sole trustee is putting too much temptation in one person's hands.
Complaints to lawyers about wills and trusts are common, says Vicki Ammundsen, trust partner at Ayres Legal. The most common complaint is "I want my money now", which isn't usually going to happen if that was not the intention of the will.
Not everyone uses professional executors, says lawyer Tony Fortune of Fortune Manning. Private executors can apply for probate, administer the will, distribute the assets and/or manage any minor's inheritance. This private route dispenses with many of the costs.
Whether private or professional, there are expectations under law that executors and trustees act in the interests of the beneficiaries and they take appropriate advice from a financial adviser or similar and invest carefully and appropriately.
Cases of executors and trustees failing in that duty do come before the courts. Fortune cites the case of Mulligan v NZLR. The wife lived for 40 years after her husband's death and when the residual beneficiaries received their inheritance the capital had been decimated. The family took the trustees to the High Court because the inheritance was invested in such a way that the real value of the capital was eroded. The trustees were found liable to the residual beneficiaries for the loss of capital.
It's a difficult situation for some trustees. If the beneficiary with the lifetime interest is old they may well favour term deposits as investments, says Holmes. The beneficiaries' wishes must be balanced against obligations for the trustees to be prudent investors.
Private executors can save a lot of money and will know and understand the beneficiaries' needs. On the other hand, you take a risk if they don't know what they are doing or if they are dishonest, says Ammundsen. "Your budget management may come at a cost," says Ammundsen.
It also means you have a paper trail that will protect the trust if it is challenged in the courts, which can happen, she says.
Back to fees. As an overall figure, the $180,000 in fees and charges estimated by the reader looks large.
Trustee companies charge an establishment fee ranging from $1150 to $3450 and then an hourly rate. Both Guardian Trust and Perpetual Trustees charges depend on the size of the estate. The bigger the estate the larger the fees paid. If trusts are created on death or other trusts need to be managed there are further on-going fees for those.
Public Trust solicitor Henry Stokes says there are three sets of costs to be considered when choosing executors. There is a cost for being executor and administering the will, another for establishment and ongoing trust fees, and investment fees.
When choosing who should manage your trusts after death it's worth considering where the money is going to be invested. With a trustee company that's more than likely going to be one of its own internally run managed funds - although the Public Trust does invest a portion of client money externally.
But it might be preferable for inheritances to be managed by an independent adviser and invested with a competitive fund manager.
Most wouldn't charge fees for setting up a portfolio as the trustee companies do. Stephen Jonas at Craigs Investment Partners, which provides investment services and management, says his company would not charge an initial fee for the establishment of the portfolio, which involves detailed fact-finding and preparation of an individualised investment policy statement, provided there is an ongoing relationship. But as with the trustee companies, there is a one-off charge of 0.30 per cent to 1.5 per cent on the portfolio when it's implemented and annual funds under management and investment management fees.
As far as fees on the investments go, funds should grow at a faster rate than the charges, says Fortune. The problem is not all investment funds are created equal and some investors argue those provided by the trustee firms have poor returns and high fees because they have little competition. They have a captive market.
Fortune says that when his company acts as an executor a financial adviser will be used and the money invested in appropriate funds.
Although it's very difficult to replace the trustee companies as an executor, it is possible to move the trusts. The reader who raised the fees issue is hoping to move her mother's trusts to her accountant, who she believes will provide a better service.
Stokes says Public Trust clients who are not happy with the service can move to another "appropriate" trustee. That might be a lawyer or other trustee company, but not the beneficiaries.
The reader who prompted this article is a financially literate business owner. Once her accountant is appointed trustee she hopes to move the children's investments to a manager such as Fisher Funds or Milford Asset Management, which she feels offer better investment returns than the Public Trust.
Complaining about trustee companies isn't easy, as the reader found out. If a complaint is about the administration of the will or trust they can use the internal complaints process or employ a lawyer and go through the courts. That's not cheap and it eats into the inheritance.
The reader says her complaints were not investigated properly even though she had a full paper trail detailing a catalogue of mistakes. Each time she pointed out sloppy work by staff, such as investments being lost, the beneficiaries of the estate are charged by the Public Trust at a rate of $220 an hour.
"When the beneficiaries of an estate have problems with the Public Trust there is no external oversight," she says. She found lack of accountability came through in the attitude of Public Trust staff.
Although beneficiaries have no independent body to complain to about the Public Trust's administration of a will or trust, they can complain to the Insurance and Savings Ombudsman about investment decisions. The Ombudsman could hear complaints about the Public Trust's core business - which is outside its terms of reference - if both parties agreed.