Moving into a Retirement Village with a Family Trust
When retirees are contemplating a move into a retirement village and there is a family trust in the background, how the Occupation Right Agreement is funded may require a little more thought.
So too does the need for the family trust, and whether it is still fit for purpose.
This is especially important where the family home is owned by the trust, or trust funds are going to be used to pay the entry payment for the ORA. Many retirement villages require the ORA to be in the resident’s personal name, even where the money is coming from the trust. That means the trustees need to consider how the payment is being made and how it should be recorded.
The trust should ideally be reviewed before the ORA commencement date and before the home sale proceeds are moved.
If the family home is owned by the trust
Many older family trusts own the family home.
If the home is being sold to fund the move into a retirement village, the trustees need to deal with the sale and the use of the sale proceeds. This means checking who the current trustees are, whether the trustee records are up to date, what the trust deed allows, and whether there are any previous trustee decisions or documents that need to be located before the transaction proceeds.
This does not need to make the move difficult, but it does need to be checked early enough. If a trustee has died, retired, lost capacity, moved overseas, or was never properly appointed or removed, that may affect who can sign and who can make decisions for the trust.
Using trust money to fund the ORA
If trust money is being used to pay for the ORA, the trustees need to consider how that payment should be treated.
It may be a distribution to the resident. It may be a loan. It may be an advance. It may be dealt with in another way, depending on the terms of the trust deed, the beneficiaries, and the wider circumstances.
The important point is that the treatment should be considered before the money is moved. It should not be left as an assumption or tidied up later if there is a problem.
This is particularly important because the ORA is often in the resident’s personal name. If trust money is being used to acquire a personal right of occupation, the trust records should show what the trustees intended and why.
Reviewing the trust records
The Trusts Act 2019 confirmed and clarified a number of trustee duties and obligations. Trustees need to know the terms of the trust, act in accordance with those terms, act for proper purposes, and keep proper trust records.
Where trust money is being used for a retirement village move, the trustees should be able to show what they decided (i.e. making a distribution or loan), what information they considered, and how the decision fits with the trust deed and the interests of the beneficiaries.
The trust records should also support the practical steps being taken. If the trust house is being sold, the trustees should record that decision. If sale proceeds are being used to fund the ORA, the trustees should record how that payment is being treated. If the trust is making a loan, the terms should be clear. If the trust is making a distribution, that should be recorded as a trustee decision.
This is also a good time to check whether the trust records are complete. The Trusts Act requires trustees to keep core trust documents, including the trust deed, variations, records of trust property, trustee decisions, accounts and other trust documents. If those records are incomplete, it is better to get them tidied up as soon as practical.
Is the trust still needed?
A retirement village move can also be a sensible time to consider whether the trust is still useful for the original purpose it was set up or for a new/different purpose.
For some people, the trust may still be useful. There may be residential care subsidy considerations, family circumstances, asset protection reasons, vulnerable beneficiaries, or other reasons to keep the trust in place.
For others, the trust may no longer be doing what it was set up to do. The family home may have been sold. The trustees may be ageing. The records may be poor. The trust may be creating ongoing legal, accounting, tax or administration costs without a clear benefit.
There may also be overseas issues. If there are trustees or beneficiaries living overseas, particularly in Australia, keeping the trust may create tax consequences that were not considered when the trust was first set up.
These points need to be weighed up carefully. There may be good reasons to keep the trust. There may be good reasons to wind it up. There may also be a middle option, such as updating the trustee records, changing trustees, documenting loans or distributions properly, or restructuring what the trust still owns.
Getting help with the trust and the village move
If there is a family trust involved, the legal work is not just about signing the ORA.
The trustees need to know whether the trust can do what is proposed, how the payment should be treated, whether the trust records are up to date, and whether the trust is still serving a useful purpose.
It is also worth knowing that everyone does not need to be in the same room for this process to work well. We regularly work with retirees looking to move into a retirement village, their attorneys and/or adult children, and trustees, some of whom may be living across New Zealand and/or overseas. This can be helpful where someone is moving to a new town or city, or where family members are helping from a distance.
Next, I’ll look at what happens when family members are helping from different places, and how to keep the legal process clear when adult children, attorneys, trustees or other family members are involved.