For the married couple, it is truly essential that an estate is properly structured, legally protected, and the disposition of assets in the case of separation clearly defined. If you have not yet started a trust for your assets as a property investor, perhaps this scenario will convince you of the need to do so.

The Case of the Trust-Less Divorce

In most cases, divorce is a messy matter. It is highly unlikely that the two parties will be able to reach an amicable agreement as to the disposition of assets. Even with a trust, in the absence of a Property Relationship Agreement a legal battle may ensue because there is still the issue of what to do with the assets in the trust.

Of course, the first step will be hiring a lawyer for each side. As we all know, legal fees can quickly add up to thousands of dollars. Consider the property investors who have a $500,000 house listed as an asset. Is a combined $100,000 in legal fees worth the argument? It may not make much sense, but this is what many couples end up doing – paying money to fight over a property that is still mortgaged.

Then again, during a divorce few people are going to act rationally. More often than not they are hurt, and those hurt feelings cause them to fight. Because legal issues can take months or even years to resolve, this must makes the pain last longer. The lucky couple engages a trustee who can help calm them both down and move them toward some agreement. The unlucky couple has no one to advise them thusly, or chooses to ignore attempts at resolution.

If an agreement cannot be reached, the next step is to go to court. It will be up to the court to decide the disposition of assets.

The Importance of a Property Relationship Agreement

If there is a trust in place without a Property Relationship Agreement, then the court must also review the terms of the trust, including how it was set up, how it has been run since its inception, who is in control of it, what assets have been transferred to it, and the amount of outstanding financing that is secured by the trust’s assets. Obviously, this could take some time.

Following the review, the court will set out its orders. Another individual could be put in charge of the trust, as trustee. The court will have to decide how much money is awarded to each ex-spouse. No matter what happens, someone is likely to be unhappy about the outcome.

The best way to avoid this scenario is for the property investor to create a trust where the assets are placed immediately. Following that, the creation of a Property Relationship Agreement which designates disposition of the assets is essential. A married couple may even want to consider creating two trusts, one for each spouse.

The time to protect your property is now.

Paul Easton works in marketing for Mathew Gilligan – an accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is a Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com

Are your children going to be surprised after your passing by what they do or do not inherit? Perhaps it is time to sit down and have an honest discussion about the terms of your will.

This issue comes to light on the heels of a case that was tried in court last fall. The case involved a deceased man whose daughters were not notified of his death, nor did they inherit any part of his estate, per his will. There was only a public notification to creditors, of which there were none that came forth. The daughters tried to make a claim two years after their father died but the courts denied the motion. They were left with nothing, just as the father had wished.

This ruling is in direct opposition to historic cases where the courts were more sympathetic for the cause of the surviving children. Clearly there is no law stating that parents must leave an inheritance to their children. Luckily there were no creditors to lay claim to the estate and the man’s surviving partner received the inheritance.

How This Affects the Property Investor

In the previously mentioned case, the father drew up a will that designated the public trust as executors. For the investor, this is not a good plan.

It is advisable instead to place assets in a company trust, not one under your personal name. This type of legal structure protects any assets – including real estate – from creditors, the Official Assignee, and duties paid on gifts. This also allows the trust to be passed directly into another trust specifically established for surviving children upon the parent’s death.

Another good idea is to draw up a Memorandum of Wishes and ensure that it is kept updated. This will inform the trustees of exactly how your assets should be handled after your death. Along with the Memorandum of Wishes, a will should also be filed. Your will designates the disposition of personal assets outside the company trust.

Why go to all this trouble? For one thing, family relationships tend to change over time. Not all family members get along with each other throughout their lives. Having the proper legal documents in place before you die means that your assets will go where you want them to go and be safe from claim. It also relieves any possible family disputes over an inheritance someone feels entitled to.

As a property investor, it is important to think of all possible scenarios when planning an investment strategy. Take care of the necessary paperwork now, before it is too late. This is an action you won’t regret.

Paul Easton works in marketing for Mathew Gilligan – an accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is a Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com

As the end of the year rapidly approaches, the Tax Working Group is hard at work reviewing the current tax system of New Zealand. The Tax Working Group is a consortium of professionals in academics, government, and industry whose expertise shapes the proposals presented to the government.

The current proposals are expected to produce greater equity in the system and broaden the tax base to be used as funding for anticipated decreases in the rate for personal, corporate, and trust taxes. Property investors will be affected by proposed changes to the capital gains and land taxes as well as the addition of a risk-free rate of return income tax.

What’s Going to Happen?

Shortly after the beginning of the new year, the public can expect to be notified of the results of the review. What will the upshot of these proposals be?

More than likely major reform is coming. When it happens is questionable. Public and committee reviews will probably defer the chances changes are enacted any time soon.

Corporate and trust top marginal taxation rates will come into alignment (the 30-30-30 option) with Australia and be assessed at the same rate. Regular corporate and trust marginal taxation rates will also match those of Australia. Currently the Australian rate is set at 27% but that is expected to decrease to 25%. Clearly these reforms are meant as an economic boost.

How Will These Reforms be Funded?

Funding to make up for the shortfall in trust and corporate tax returns will obviously have to come from somewhere. Right now it appears as if the decreases will be financed through:

* The GST increasing to 15%. This is an easy and quick fix. * Imposition of ‘rifle taxes’ that are assessed on capital gains from rental and commercial properties. In addition, existing rules will be more rigorously enforced. * Speculative investors held to tax liabilities. Presumably this will reduce the risk of creating a market bubble based on speculative real estate investments. * Government spending will be reduced in order to effect cost reduction and economise current holdings. This is in direct opposition to a Labour type of government model.

Imposing a stamp duty on land transactions might be quite beneficial to the new tax program. Its progressive nature is both fair and equitable as well as being a simple piece of legislation that is easy to enforce. This would also reduce the practice of speculation by taxing the investor’s margin.

Only time will tell exactly what the Tax Working Group will propose to the government in the upcoming year but do expect change on the horizon.

Paul Easton works in marketing for Mathew Gilligan – an accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is a Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com