Family Trusts (Peter Hensley)

by Peter Hensley, The Money People

The winter chills had finally set in and Jim and Moira decided to have their close friends and previous neighbours Jan and Ken around for a meal. Jim told Moira that they should arrange to eat early as the All Blacks were scheduled to play Australia at 7.30 and it was to be their last local game prior to the Rugby World Cup. Now Moira did not share Jim’s enthusiasm for the rugby, however they had been married long enough for her to tolerate his passion for sport, especially as it was our nation’s representative team.

Jan and Ken arrived a trifle early as Ken wanted to talk through an issue relating to their family trust. Once they were settled he wasted no time asking Jim and Moira if their family trust owned any residential rental property. Jim was hesitant as he did not normally discuss their financial affairs with anyone except their adviser. He sidestepped the question by asking Ken the obvious question, why did he want to know?

Ken went on to say that they had just discovered that a shed on one of their rental properties (they had four) was being used as a P lab. Well, you could have heard a pin drop. There was an awkward silence and then Moira asked how they found out. It turns out that a boyfriend of the daughter of the person who was renting the house was a patched gang member. The father was not aware of this and had allowed him to move into the sleep out attached to the garage. Not long afterwards the police turned up to execute a search warrant and they uncovered a virtual supermarket of drug making ingredients.

The father had noticed that the boy kept odd hours and he told him that he was working night duty at the local supermarket filling shelves which was the reason he had put black out curtains on the windows. He seemed a reasonable lad and the excuse seemed plausible in that the curtains would let him sleep during the day.

Jan and Ken found out about the police raid from one of the neighbours who lived next door. When they first bought the place, Jan had made it her business to visit the surrounding houses and made sure they were aware that the house was being rented and how to contact either of them if there was ever any trouble. They had done that for each of their four rentals, however neither of them had considered that this event could happen to them.

Jan was almost in tears. They had worked hard and been very frugal all through their working life, making sure that they vetted each tenant. They had been diligent in paying off all the mortgages and were justifiably proud they had accumulated property worth well in excess of $1.75 million which was allowing them to retire comfortably without having to worry about having enough money to live on.

Ken was a little more practical. As soon as he heard the news he arranged a meeting with the tenant and instead of serving them notice, he agreed that they could remain on a reduced rental. Now it was Jim’s turn to look aghast, crikey he would have tossed them out on their ear. After blurting out what he would do with renegade tenants, he prodded Ken for his reasoning.

It wasn’t that difficult Ken said. They had a property which was contaminated by being used as a P lab, generally this would make it un-rentable. It was better to receive a reduced rent, than no rent at all. Jan and Ken had to pay to have the garage cleaned up and decontaminated and were grateful that they still had an income to offset some of this cost.

Now that this was all out in the open, Moira thought it would be a good time to serve dinner as she knew that Jim would not let anything interfere with the All Blacks' game. Whilst he was sympathetic towards the predicament that Jan and Ken found themselves in, it was a Bledisloe Cup game after all.

Once they were seated at the dinner table, Ken then went on to explain that the P lab experience had created another problem for them. Moira, who was initially shocked when she heard of their trouble, was downright flabbergasted when she listened to the second part of the story. To get back to the initial question Ken had asked Jim, when they arrived, if their family trust owned any rental properties.

It turns out that one of Jan’s daughters (from her first marriage) married a very litigious solicitor. The daughter is one of several secondary beneficiaries to Jan and Ken’s family trust. The daughter’s husband has been investigating the idea of suing the trustees of Jan and Ken’s family trust for negligence.

He is arguing that the trustees had a duty of care to maintain and look after the trust’s assets. They should have had an inspection program in place and as a result of their lack of care, the trust asset has not only lost value, but it has cost the trustees an immediate loss in paying for the clean up costs.

This latest news came as a shock and it caught Jan and Ken completely off guard. They had set up their family trust to allow them to protect their assets whilst they were still alive and also to arrange for the orderly transfer of what assets would be left after they died to the next generation. They did not expect that the same vehicle would be used against them by the same people they were looking out for.

Having sorted the P lab and arranging the cleanup, they were fortunate that it had not ended up being noted on the council LIM report. Ken was perplexed as to why his favourite step daughter would consider such an action. Once Jan was able to sit down with her, it turned out that this action by her husband was his idea and she wanted nothing to do with it. In fact it was the end of the road for the relationship. She ended up kicking him out for even considering such action against her parents.

As expected the subsequent divorce proved to be protracted and messy, however Jan and Ken’s forward thinking of allowing the daughter to rent one of their rental homes proved extremely beneficial and practical. Their independent trustee had insisted on regular meetings and detailed minutes which added to the robustness of their planning.

Just before the game Jim shared with Ken the fact that because they had not enjoyed being a landlord they had subsequently sold all of their rental properties. They were very pleased with the consistent performance from their conservative investment portfolio, which incidentally was of a similar value to Jan and Ken’s property portfolio and they enjoyed a higher level of income with obvious reduced hassles.

Jim steered the conversation to the pending Rugby World Cup as the referee blew the whistle signaling kick off. Go the All Blacks.


This work is Copyright 2007 by The Money People Limited . All rights are reserved. No part of this publication may be reproduced, photocopied, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or by any other method, without the expressed written permission of the author.

DISCLAIMER: GrownUps is not making a recommendation to you. GrownUps accepts no responsibility for decisions made as a result of using the information provided.

print