Where there’s a way, there’s a will – and yes, you need one, explains Andrew Steele, partner at Martelli Mckegg lawyers (martellimckegg.co.nz).
After you die, do you want your loved ones to be provided for? It’s a simple question, and your answer is sure to be a resounding yes. The usual way to ensure this happens is to make a will.
What is a will?
A will is a formal legal document that tells the people you choose to look after your property after you die (the executors), what you want done with your property. Usually, that means providing for your partner/spouse and children, but it may include giving gifts (bequests) to others or perhaps to charities you wish to benefit.
What if I don’t have a will?
If you don’t have a will, then your property will pass to your loved ones, but as dictated by the Administration Act 1969 (which means the result may not be desirable). For instance, if you leave behind a partner or spouse and children, then the Administration Act dictates that your partner or spouse will receive the chattels and $155,000, and the balance will be divided one-third to your partner or spouse and two-thirds between your children. If this is not the outcome you want, then you need a will.
Is it hard to write a will?
Wills can be simple and cost a few hundred dollars, or be complicated and cost many thousands. In most cases, a simple will is all that is required. The first step to making a will is to write down what you would like done with your property after you die, then to seek legal advice to have a will drafted that achieves those wishes. You can draft your own will, but to have legal effect, it must comply with the formalities dictated by the Wills Act and, if you make a mistake, then it can be an expensive and timely process to undo the problem after you die – assuming the mistake can be undone at all!
What do I do once I’ve made a will?
Once your will is drafted, signed, and witnessed, it should be kept somewhere safe and handy. Prudent will-makers keep their will with their lawyer for safekeeping and keep a copy at home with directions on it about where to find the original.
The key to understanding a trust is to understand how the law sees ownership of property. In law, ownership has two parts: Legal ownership and beneficial ownership. Like two sides of a single coin, they are the two sides of ownership. A trust separates the two parts of ownership and gives one part to one person and the other part to another person. A simple trust works like this: Rachel owns a piece of land. In the eyes of the law, Rachel’s ownership comprises two parts: Firstly, the legal ownership part signified by her name on the certificate of title for the property, and secondly, the beneficial ownership part. Rachel wishes to put the land “in trust” for the benefit of her husband and children. This is called settling the land into a trust, and hence Rachel is called the settlor. To achieve this, Rachel transfers the “legal ownership” of the land to someone she has chosen (let’s say her friend Brian). Brian is called a trustee, and is responsible to hold that land for the benefit of Rachel’s husband and children, who are called the beneficiaries of the trust. And Rachel declares that the “beneficial ownership” is transferred to the beneficiaries. The parties in this arrangement are now:
- Rachel, who is the settlor of the land into the trust. By settling the land in this way, Rachel has completely given up her ownership of the land. She trusts Brian to do what she intends with the property.
- Brian is the trustee. Brian only holds the legal title to the property instead of Rachel, but the property is not really his, it belongs to the beneficiaries. Brian must deal with the property according to Rachel’s wishes and intention; that is, upon the terms that he accepted his trusteeship – usually set out in a written trust deed.
- Rachel’s husband and children are called the beneficiaries because they hold the “beneficial ownership”. They could be said to be the real owners of the land. Importantly, Rachel can name herself as a beneficiary too. Almost all family trusts are “discretionary trusts”. This differs from the above in one fundamental way: The beneficiaries do not receive a “beneficial ownership” of the trust property from the beginning. Instead, Rachel gives her chosen trustee, Brian, a discretion to decide when and to whom among the beneficiaries he will give the property. In legal terms, this “giving” of property by the trustee is called distribution. And it is only on distribution that the beneficiary receives “beneficial ownership” of the property. So why bother settling a trust? A number of benefits arising from the settlor giving up ownership of valuable assets, including for example:
- Creditors claiming against the settlor cannot claim against the assets settled in a discretionary trust. Even the Official Assignee in bankruptcy cannot access those assets. This is useful to protect the settlor’s home against trade creditors.
- If trustees are chosen wisely, then they can give comfort and security to the settlor that their loved ones will be looked after in a considered and appropriate manner if they should die or lose mental capacity.
- If a child is not responsible, it enables them to be looked after without simply leaving them a large bequest on the settlor’s death which could be misused.
- It avoids claims against the settlor’s estate after they die, because the property that would otherwise been in the estate will instead be in the trust. A trust is not something you should draft yourself; you need a lawyer’s assistance.