In this article, we explain in more detail how Southpac operates, who clients deal with at Southpac, what is involved in some common transactions and what clients can do to help transactions run smoothly.
General Southpac Procedures
The primary point of contact at Southpac for trust settlors, beneficiaries or their attorneys (the ‘Client’) is a member of our in-house Legal and Client Services Team situated in our New Zealand office (the ‘Contact’). The Contact works closely with these parties to gather all the necessary information required for the trustee to make informed decisions in the best interests of beneficiaries, while ensuring compliance obligations are met.
The Contact’s responsibilities include ensuring the trustee possesses all the essential information and documents to be satisfied transactions are valid and legitimate. They liaise with in-house compliance staff to ensure the trustee holds all relevant due diligence. They will also liaise with the Client and gather or prepare any documentation required to facilitate the transaction, along with drafting resolutions for the trustee (and sometimes corporate manager or protector). These resolutions are crucial in justifying the rationale behind a transaction and can be relied upon if the trust faces any legal challenges.
It is important to note that the trustee does not merely follow Clients’ requests without question. Rather, they meticulously evaluate requests, ensuring they are in the trust beneficiaries’ best interests. Having a skilled legal professional as the point of contact safeguards the integrity of trust structures and ensures that all requests are handled appropriately in compliance with the correct procedures. This strengthens the asset protection capabilities of Clients’ structures.
Gifting Assets to the Trust
The first step in using a trust structure, once the trust is established, is to transfer legal ownership of assets to the trustee. This involves gifting the assets to the trust, which means that settlors no longer own them personally. Instead, they’re held by the trustee on behalf of the beneficiaries. The process of transferring assets is different, depending on the type of asset, but a deed of gift will be required as a minimum to show an effective transfer of ownership. Part of the services Southpac provides as trustee is to ensure all gifting is recorded properly, to be as watertight as possible should there ever be any threat to the assets.
Having the trustee as the legal owner is a key aspect of ensuring asset protection, because the assets are no longer in the settlor’s name. We understand that this idea may seem a little unnatural – handing over ownership of assets settlors have worked hard to earn; but remember, the trustee cannot benefit from the trust’s assets. Only beneficiaries are able to benefit from them.
Transfer of ownership may have tax implications, so it’s important to seek advice from a professional tax advisor before placing assets into a trust.
Clients frequently use structures involving a trust and one or more companies owned by the trust and managed by the Client. Such a structure allows for greater Client control and flexibility but cannot be operated without regard to the trustee. Where a Client transfers assets into a company owned by a trust, they must liaise with the trustee as part of this process so that the trustee can record the transferred assets as being accepted into the trust and then transferred to the underlying company. Without documentation which evidences that assets held by an underlying company have first been accepted into the trust, those assets may not be covered by protective trust laws.
Where a Client wishes to add assets to a trust they should let the Contact know as soon as possible so that the Contact can analyse the assets which the Client is settling, request any supporting evidence the trustee might need to be satisfied that the assets are from a legitimate source, and draft the necessary gifting documentation.
Reviewing the Trust Deed and Drafting Documents
The trust deed is a legal document that sets out the rules for how the trust will operate and how the assets will be managed. Every time assets are gifted to the trust, a distribution is requested, or a new investment is proposed, for example, the Contact needs to analyze the trust deed to ensure the trustee follows the rules and processes prescribed in the trust deed. Each trust deed is different, with some requiring involvement of the Protector, or some other specific process to be followed. Southpac needs to make sure it follows the right process and the Contact can draft the appropriate documents to ensure that all transactions are valid and reasonable, which will make it harder to challenge them.
Ongoing Management of the Assets
As a trustee, Southpac has the responsibility to manage trust assets for the benefit of trust beneficiaries. This includes investing the assets, paying bills and expenses, and distributing income and capital to the beneficiaries according to the terms of the trust deed. The ongoing management process requires Southpac to maintain up-to-date compliance documentation, as required by international legislation. Doing this also helps us understand our clients better and allows us to manage trust assets more effectively.
Another aspect to consider in asset management is the investment strategy the trust should follow. Southpac holds an extensive network of investment advisors and custodian banks around the world which can be used to help maintain, and grow, trust assets.
Costs Involved in Managing Assets Through a Trust
There are costs involved in managing assets through a trust, including legal fees for drafting and reviewing documents and for corresponding with Clients, ongoing management fees, and investment fees. It’s important to understand these costs and how Southpac charges for its services. For more information on our charges please ask your Contact to provide a copy of our latest Fees Guide.
Timing for Completing Transactions
Timing for completing transactions is a critical aspect that deserves attention. It is important to note that each transaction requires time to thoroughly analyze documents, accurately record the transaction and maintain proper conduct. While urgent matters are considered and can be prioritized, the trustee places paramount importance on taking all essential precautions, before executing a transaction. These precautions may involve in-depth analysis and compliance checks to ensure proper processes are followed.
Southpac encourages clients to advise the Contact of any urgency and to request a time-frame to deal with their matters. Transparency is important to manage expectations and facilitate smooth communication between all parties involved. As a rule of thumb, Clients should allow around a week for a gifting or distribution transaction. This allows sufficient time for the Contact to collect the necessary supporting documentation from the Client, arrange for the trustee to review it, draft the necessary documents to give effect to the transaction and liaise with any bank which is making or receiving funds. There is a lot more involved than simply making an online payment!
Conclusion
Managing assets through a trust involves several steps, including gifting assets to the trust, drafting and reviewing documents, and ongoing management of the assets. As a trustee, Southpac has the responsibility to safeguard those assets and manage them for the benefit of the trust beneficiaries, and it’s important that the Client works effectively with their Contact  to ensure that the trust is operated properly and does the job of protecting the Client’s assets which it was set up to do.
