Recessions bring about all sorts of alterations. For example, in the legal planet, commonly people stop purchasing houses, so lawyers manage out of conveyance work. Equally, money starts to get tight so people start to sue each other. This of course means extra litigation work for the lawyers.

Recessions can also bring about some dramatic individual life alterations. For instances, people can be made redundant which in turn, creates financial stress. frequently, this strain spills over into their individual relationships. When this happens, regrettably some couples break up.

When a couple separate they as a rule divide up their assets. If their resources have been put in a Trust the inescapable question arises: What occurs to the possessions in the Trust? This query is of huge significance because when a liaison breaks down, there can be a lot of hostility happening and frequently the only thing left standing is Trust.

Prevention is Better Than Cure

At the outset, before assets are placed in a Trust, all folks should acquire good quality legal advice. This is completely necessary because when possessions are transferred from an individual to a Trust, an Individual property rights are affected.

Secondly, the legal advice obtained by the parties will as a rule include a very strong recommendation for the parties to enter into a legal Property Liaison Arrangement. Should a relationship break down after the assets have been transferred through to the Trust, this Understanding will become invaluable. The folks will be saved a huge legal bill as they will not have to go to Court to argue over the resources.

Thirdly, an actual Contract should be entered into between the parties. The Arrangement, if prepared and executed, is likely to set out a assortment of matters including an acknowledgment of what resources belong to each of the parties before those resources are transferred to a Trust. It may also set out what will transpire to those possessions when they are moved through to a Trust should the parties ever split.

Lastly, if an Understanding has been entered into by the parties and material goods have subsequently been transferred to the Trust then the issue is pretty easy. This is of course providing the Arrangement stated what was to occur should the parties ever break up.

In the normal course of dealings what this means is the assets of the Trust are sold, loans are repaid and the balance of the sale earnings are put into the trust’s bank account, ready for division between the parties.

Often at this point in time the existing Trust is made into one of the individuals own Trust and another Trust is set up for the additional remaining party. So in effect, each of the parties ends up with their own Trust.

Then half the sale earnings are sent to the new Trust and the extra half of the sale income simply remains in the on hand Trust (which was earlier turned into one of the individuals Trust).

Two is Better Than One

It’s no secret that many smart people have two trusts. One each. Each Trust will hold its own resources and commonly a half share in the family home. Why have two Trusts rather than one? If you have two Trusts you have the ability to deal with property that was solely your own before it went to the Trust. This could include family heirlooms.

Also, your own Trust can be the recipient of any inheritances you might receive, such as money from your own family.

In general, having your own Trust means you can deal with the possessions in the Trust as you and your Trustees wish. You can do this without the consent of your other half (assuming they are not your Co-Trustee).

When Things Go Wrong

If the parties don’t ever enter into a legal Arrangement and cannot consent on what is to happen with the assets that are in the Trust, problems can occur.

When this occurs only the lawyers win. The problem is, that competition costs a lot of money if it goes on for a long period of time. I’m not advocating that an individual shouldn’t engage lawyers when and where they are required. All I’m saying is a little common sense needs to exist in these situations.

But if you can’t get an agreement, then what occurs? Well the matter just has to go to Court. Which means the Courts look at how the Trust was organised, how the Trust has been continue over the years, who has control of the Trust, what assets have been moved to the Trust and what loans the Trust owes back to the individuals.

Further matters can also come under examination but in the main, these are the points the Courts will look at. Once the Courts evaluate the topic they may make a mixture of Orders. These can include putting an independent person in to continue the Trust (act as a Trustee) as well making a financial award.

Janet Xuccoa BCom LLB, is a Family Trust specialist and accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is an accounting firm specialising in property and New Zealand Accountants