Simple asset and estate planning

Key documents and making sure they work together

Traditionally, an individual had two documents recording their wishes for the protection and distribution of their assets – a Will, to provide direction when its maker was dead, and a Power of Attorney, to provide direction when its maker was alive but lacked mental capacity.

Today, the key components of asset and estate planning often comprise the following four documents:

Will

Any adult who has a child or who owns property should have a will. This can relive financial strain on your family following your death and make sure your wishes are carried out. If you die without a will your property will be distributed by either the Administration Act – usually division in set proportions among your family; and/or the Relationship Property legislation.

It is important to note that your will is automatically revoked if you marry, re-marry, or enter into a civil union, unless the will is made in contemplation of that marriage or civil union. Note the same does not apply to de facto relationships.

Care should be taken to properly identify the will-maker’s assets and how they are owned, especially where an associated trust is involved. A will purporting to dispose of assets that are not owned by the will-maker can and will result in claims being made against the estate that will incur time and money to resolve.

Where a will-maker is also the settlor of a trust, it is common for the settlor’s will to link to the trust. However, care is required to consider whether this is in the best interests of the surviving spouse or partner.

Trust and Memorandum of Wishes

A trust is a flexible device for the ownership and distribution of property, and is commonly used in New Zealand for a number of reasons.

Probably the most valid standalone reason for settling a trust is the protection of assets for the settlor’s children and grandchildren. Nominating children as beneficiaries of a trust is the optimal way to allow them the benefit of their predecessor’s wealth, without the risk of it being dissipated through spending or unwise decisions. However, there are other factors to be aware of when considering settling a trust later in life, the primary example being the current Residential Care Subsidy scheme, as settlement later in life may not always be as effective as ensuring a Residential Care Subsidy the settlor might think.  Advice before settling a trust is strongly recommended where the primary consideration is  entitlement to a Residential Care Subsidy.

A memorandum of wishes to accompany the trust is not a legal document, but is a way to provide guidance to trustees following the death of the settlor. It is very important that it is reviewed over time and amended to address changing family circumstances.

Contracting Out agreement for the purposes of the Property (Relationships) Act 1976

In the event of separation or death this Act divides all relationship property equally unless the Court decides that there are exceptional circumstances that should prevent this. Section 21 of the allows couples to contract out of the Act and make their own private agreement to determine the status, ownership and division of their property on separation or death. This is called a Contracting Out Agreement. It can be made at any stage of the relationship although it is advisable to do so before the relationship has lasted 3 years.

Many people are happy to divide their property equally, however an agreement might be useful for couples bringing significant assets into the relationship that they wish to keep separate, or for providing for children from previous relationships.

Section 61 of the Property (Relationships) Act provides that a surviving partner or spouse has the option following the death of their spouse or partner to elect to apply for a division of property under that Act, or to accept any testamentary bequest left under their will. Many contracting out agreements provide that the survivor will not elect Option A (to make an application under the Act) pursuant to the Act.

Enduring Powers of Attorney

An Enduring Power of Attorney (EPA) is a document that allows you to appoint a person to take care of your welfare or your property. If you were to be incapacitated without an EPA and there is a need for someone to make decisions about your property or welfare it is necessary to apply for the appointment of a welfare guardian and / or property manager to the Family Court under the Protection of Personal and Property Rights Act 1988. This can be both time consuming and expensive and can become a further burden on family already coping with a stressful situation. 

A Personal Care and Welfare EPA will only come into effect if you become mentally incapable, and will cover your health, living arrangements, and care decisions. A Property EPA can either be effective immediately, or only if you become mentally incapable, and covers your finances and assets. You can suspend or revoke your EPAs any time you choose provided that you still have mental capacity.

An EPA provides peace of mind as you know that people you trust will be the ones to make decisions about your life and your possessions, and that people close to you will not have to seek the assistance of the Court in caring for you.   

As no-one can know what might happen in their future, current EPAs are a very important component of asset and estate planning.

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