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Part and parcel of establishing and maintaining a trust is ensuring your estate planning documents are in place. By estate planning we’re referring to wills and memorandum of wishes. These two documents interact with your trust and play an integral role in ensuring your wishes are known and adhered to.
Often individuals establish their trust with the intention they will complete their wills and memorandum of wishes at a later date. Unfortunately, for some people that later date never comes. As a consequence, they die without a will and a memorandum of wishes leaving their family and trustees floundering. Devastating outcomes can then result. Below you’ll find some valuable information to help you avoid such catastrophic consequences.
Your will serves as a record of your wishes. It details who is to act for you in the distribution of your estate and provides instructions as to how your personal assets are to be treated when you die.
Ultimately, having a will gives you control over asset distribution.
Benefits of having a Will include:
Provide peace of mind for yourself and help your loved ones proceed with their lives by leaving your affairs tidy and putting in place a will.
Fail to put in place a will, and your affairs can become complex, time-consuming, and expensive. This is especially so if you are in a de facto relationship or part of a blended family, and you haven’t completed a will.
Lack of a will means assets are distributed per the strict formula provided for under the Administration Act 1969.
Not having a will can result in:
Don’t let this happen. Put a will in place.
Everyone over the age of 18 years, who has full mental capacity, and who has assets valued at $15,000 or more, should make a will. People often think they don’t have assets that reach this value, but this can be an erroneous thought as their Kiwisaver balances may total more than $15,000. Alternatively, they may be a beneficiary of a trust that owes them $15,000 or more in distributions/assets.
People who are under the age of 18 years, who are mentally competent, can also make a will and often do. This applies especially to those brave people who serve in the armed forces. It’s a sensible, proactive thing to do.
The person who will look after your affairs, pay your funeral expenses and accounts, distribute your assets, and ensure your wishes are carried out as per the instructions you’ve left in your will, is called an executor/executrix. Ensure you choose someone who has the confidence, intelligence and skills required to do the job properly. Also, consider naming an alternative person to act where your first choice of executor/executrix is unavailable or unable to act.
Parents who have children under age 18, should nominate a person to be a guardian of their children. This provides a primary caregiver for the child where their parent has died and negates the need to make guardianship applications to the court. Parents generally choose people who can teach their child the standards and values they themselves would impart and who can provide love and emotional support to their child as guardians.
If a person is to receive a specific item upon a will-maker’s death it should be noted in the will. A description of the item, the name of the recipient together with the age they are to receive, are details that should be recorded. Specifying a recipient’s age increases the chances they’ll be responsible enough to look after what they receive. This takes on increased importance if monies (legacies) are the subject of the bequest.
Often a will-maker will have philanthropic goals they have pursued during their lifetime which they want to emulate upon their death. This can be achieved by will-makers making charitable donations in their wills to the charity of their choice. Details of bequests should be discussed with the executor/executrix of a will to ensure they are aware of the will-maker’s intentions as this will provide the best protection their bequest instructions are carried out.
People gather personal belongings, household items and furniture during their lifetimes which must be dealt with upon their death. These items are referred to as chattels. The task of managing chattels falls to an executor/executrix. Chattels may be passed to one person or shared amongst people. In all cases, the name of the person/people who are to receive the chattels should be noted in a will making it clear whom the Executor should pass the chattels to.
It is important to consider how your body should be treated after you die. Decisions regarding burial or cremation need to be made. Specifying wishes takes on an even greater significance if particular religious or cultural practices should be followed. Dissent amongst family members and legal wranglings can be avoided if clear instructions in respect of desired arrangements are specified in a will.
After payment of estate debts and those items a will-maker has provided for in their will have been dealt with (e.g.specific bequests, legacies, and chattels) other items belonging to a deceased person may still remain. These remaining items fall into a category referred to as the residual estate. A will-maker needs to name the person who they wish to receive their residual estate in their will, so the executor/executrix knows who is to inherit. If a will-maker has a trust, often the residual estate will be directed to their trust.
On the basis you have a trust which holds and protects your assets or a trust that you conduct your business affairs through, your will is very likely to contain the following provisions:
A will-maker may be owed money by the trustees of their trust at the time of their death. To ensure such debt is forgiven, it’s usual for a will to contain a debt forgiveness clause which negates the need for trustees to repay the debt to the will-maker’s estate. This is important because, without this provision, funds could end up back in the will-maker’s estate thereby defeating an estate planning goal and possibly putting the funds at risk.
Most people will hold the power to appoint and retire trustees and sometimes to appoint and remove beneficiaries in their own trusts. Naturally, you’ll be unable to exercise this power when you die. For this reason, it’s commonplace to nominate whom you wish this power to be transferred to upon your death.
Some people labour under the fallacy they can write their own will. Unfortunately, we know first-hand how even the most basic of wills can end up in court, for interpretation purposes or worse, being contested. For this reason, we recommend wills are drafted by someone experienced in the area of trusts and estates.
Having your will prepared by a professional such as Black + White Trust Services will ensure its contents and the manner in which it is executed conforms to all the legal requirements including the Wills Act 2007. This should avoid unnecessary stress in deciphering the meaning of your will. It will also negate the need to enlist the assistance of the courts in determining particular provisions of your will and should reduce the potential of successful challenges to the estate provisions you have made.
When a person (settlor) establishes a trust, they are more often than not a trustee of that trust. Accordingly, they will rule with the other trustees of the trust, administering the trust and most importantly, managing the assets of the trust. When the settlor dies, however, they will no longer be able to manage the trust assets. They will, however, be able to leave some written guidelines, outlining what they wish to occur with the assets of the trust going forward. These guidelines are contained in a document called a memorandum of wishes.
During the course of a lifetime, a settlor may complete many memoranda of wishes. Where this occurs, the most recent memorandum of wishes is likely to prevail. In such a case, trustees will take into account the wishes expressed in the latest memorandum of wishes providing of course those wishes are not inconsistent with the terms of the trust.
Fortunately, a case has come before the courts which has shed some light on how binding a memorandum of wishes actually is. Specifically, this case noted trustees were entitled to consider the wishes a settlor expressed in a memorandum of wishes providing those wishes were not inconsistent with the terms and purposes of the trust the settlor established. To determine consistency, trustees are entitled to give regard to a wide range of factors, including the circumstances that applied at the time the settlor expressed their wishes.
Given this recent case law, it’s clear that whilst memoranda of wishes are not legally binding in the sense wills are, they are highly persuasive at law. Also clear from this case is the salient reminder the court sheeted home to all trustees to ensure they satisfy their statutory duty under the Trusts Act 2019 of retention of trust documents. Such retention includes the memorandum of wishes. By implication, this means trustees must know of the contents of the memorandum of wishes a settlor has drawn up. This reinforces another statutory duty trustees owe in that they must acquaint themselves on a regular basis with the wishes of a settlor, the circumstances of the beneficiaries and the values of the assets and liabilities of the trust (amongst other matters) under their remit.
Despite the fact trustees are entitled to consider a memorandum of wishes, this doesn’t mean they are legally obliged to adhere to the wishes expressed in the memorandum. Nor for that matter can trustees abdicate responsibility and blindly follow a memorandum of wishes provisions either. Confusing right? Rather, trustees must make an independent assessment of the appropriate course of action they should take, and they must make this assessment in light of the objectives and purposes of the trust and all material circumstances that prevailed at the time the settlor made the memorandum of wishes and that currently befall them as trustees. It’s a complicated business which is why it’s vital to draft a memorandum correctly.
The circumstances individuals face in life are not identical. Accordingly, the wishes settlors express in their memorandum of wishes vary. Because a memorandum of wishes should be crafted to reflect the wishes of the settlor making them, the provisions contained in the document naturally differ. This said, there are particular provisions that are commonly found amongst memorandum of wishes as listed below:
The above list is not exhaustive and is merely for indicative purposes only depicting provisions commonly found in memoranda of wishes.
Wills and memorandum of wishes go hand in hand when a person has a trust. Each document has a unique function to play.
If we concentrate solely on the functions of a will in relation to trusts, it sees the power of appointment transferred to a person in whom the will-maker has confidence and trust and where appropriate, forgives any debt owed to the will-maker by the trust.
Memorandum of wishes, on the other hand, provide guidance to trustees when a settlor is deceased. As such, the memorandum is vital to put in place at the time a trust is created and regularly reviewed. If this document is non-existent, trustees must rely solely upon their own judgement when making decisions. With the best intentions at heart, those decisions may be contrary to the decisions a settlor would want made in relation to the assets of the trust and the beneficiaries who are usually their loved ones.
At Black + White Trust Services we understand the importance wills and memorandum of wishes play in people’s lives. We’ve seen the emotional effects and financial fallout that occurs when these documents don’t exist or exist but are full of inconsistencies. This is why we advocate preparing wills and memorandum of wishes at the time a trust is created and regularly reviewing them to ensure they reflect your wishes.
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