Agri family businesses that have a trust structure need to make sure they're not burnt by the changes in legislation that governs trusts.
Crowe Horwath business advisory partner Denis Hames says neglecting your family trust has never been a good idea and in light of the new Trusts Bill currently going through parliament, which would tighten up the obligations and responsibilities of trustees, trusts will need to be reviewed to ensure their 'fitness' in the current environment.
It's estimated there are between 300,000 to 500,000 trusts in New Zealand and they have been a common structure for many farming families. The Trusts Bill was introduced to parliament on August 1 and has begun the process of going through readings before going to the Select Committee stage.
"Succession discussions for farmers have never been easy, and openly communicating with family members about the future is often put in the too hard basket. The new trust legislation therefore is an excellent impetus for our rural community to start this process, as a lot of land is held in trusts.
The mechanics of trusts are not well understood, and the review of Wills and Memorandum of Wishes for the trustees as part of the trust review process really puts a spotlight on the succession issue," says Mr Hames.
He says when things go wrong - and they can go wrong in a big way - some families have become divided and lost a lot of money.
"When we have reviewed trusts for clients we have discovered wills well out-of-date, no Memorandum of Wishes for the trustees in place, trust records being barely adequate, and the 'what if' scenarios lacking."
Mr Hames says in one trust review Crowe Horwath completed they found the wills related to a family trust that was wound up 20 years ago, and the beneficiaries in that trust were different to the ones in the existing trust.
Even though the solicitor had formed the new trust and done a Deed of Resettlement to the new trust, he had overlooked updating the clients' wills and Letter of Wishes - to the extent the wills didn't make sense of the current situation.
He says with sharply increased responsibilities for trustees - especially in requiring them to be more accountable to beneficiaries - the possibility of litigation has become greater, unless trustees act appropriately.
"There have been far too many instances when something untoward happens and suddenly things become urgent - wills are suddenly looked at, insurance covers examined - but in many cases it is too late.
Now is the time to complete a comprehensive review of your family trust and the way they intermingle with farming activities - procrastination is not a sensible strategy," says Mr Hames.
"These matters are simply too important to ignore. The cost of inaction could lead to very expensive future court action and emotional turmoil. The trust review process ensures that succession issues start to get addressed in a timely and very cost effective manner."