The New Zealand Wills market and the Public Trust

Do you need to update your Will?…

At the end of 2010, media reports from the Financial Review of the Public Trust being conducted by Parliament’s Commerce Select Committee have indicated that the Public Trust is deeply unhappy with the level of government funding it receives.

Public Trust chief executive Grenville Gaskell reportedly told the committee that government funding does not cover the cost of providing the organisation’s free will service.

Anyone who has received a letterbox flyer with the enticing message “Do you need to update your will?” will know that the Public Trust is in the business of providing wills. Go to the special Public Trust website and you can make a plain English will. Free of charge – as long as you appoint the Public Trust as your executor. Otherwise, the will costs $75.

Lawyers make wills. Lawyers also administer estates, carry out conveyancing, manage family trusts and act as attorneys for people. So does the Public Trust. At this point it’s important to note that my.lawsociety is not launching an attack on the Public Trust or questioning its right to provide certain legal services. Instead, our intention is to provide some background on the Public Trust and its involvement in wills along with some interesting information on the size of the wills and estates market in New Zealand.

What exactly is Public Trust?

The Public Trust was established in 1872. As one of a number of radical New Zealand innovations which pepper our history, it was set up as a Government agency which had the role of preventing the misappropriation of trust funds upon a person's death. One problem of colonisation was that many relatives tended to be 12,000 miles away in the British Isles and finding a trusted executor or trustee was not easy.

While there was a fierce battle between the House of Representatives (in support) and the Legislative Council (against) before the law establishing the Public Trustee was passed, the office very quickly became a New Zealand institution. It also expanded its powers rather rapidly. In 1873 the Public Trustee was empowered to adminster the estates of persons who died intestate, to act as trustee of settlements, and to manage properties on behalf of living persons. Things sort of grew from there. By 1880 the Public Trustee was handling over 1500 estates, and by the mid-1960s it had 51 branch offices and 64 agency offices around the country.

Major reform came in 2002 when the Public Trust Act 2001 came into force, replacing the Public Trust Office Act 1957. This states that one of the key functions of Public Trust (the “Office” was dropped) is to “develop, promote, conduct, or otherwise participate in the business of providing comprehensive estate management and administration services, including associated legal, financial, and other services” (section 8(1)(a)). In carrying out its functions it is required to have the principal objective of operating as an effective business and being as efficient as “comparable businesses that are not owned by the Crown”.

What does the Public Trust do today?

Today the Public Trust has 492 staff spread over 30 customer service centres, and claims to look after the interests of 268,000 New Zealanders.

As a Crown Entity, it is legally separate from the Crown and is required to operate at arms length from the responsible Minister (Simon Power as Minister of Justice). Information about the Public Trust’s earnings is included in the annual financial statements of the Government.

The following statistics are included in the Annual Report for the 2009/2010 year (presented 15 October 2010):

· It helps more New Zealanders write their wills every year than anyone else. (“We're responsible for writing around 25,000 wills annually”);

· It look after more estates than any other organisation - around 6,000 each year;

· It manages more than 4,000 family trusts;

· Its total mortgage lending, including commercial lending, is around $290 million;

· It administers or manage approximately $4.1 billion in assets, including around $1.4 billion in investment funds;

· It manages the financial matters of more than 2,100 customers as their attorney, including 700 people who are incapacitated and unable to manage their own affairs; and

· It manages over 450 charitable trusts, comprising around $350 million in assets between them. These charitable trusts generate funding for interests as diverse as science, medicine, disability and agriculture.

How is the wills and estate business managed?

Public Trust and the Responsible Minister entered into an output agreement for the 2009/10 financial year. This covered certain “non-commercial services” which were either paid for or subsidised by the Crown to ensure that “reasons of affordability do not prevent or preclude New Zealanders from obtaining key services relating to the management of their estates or personal affairs”.

The non-commercial services provided under this agreement were:

· Advice on wills and the preparation of wills;

· Non-commercial services with respect to the protection of personal property rights;

· Advice on behalf of incapacitated persons for the protection of personal property rights;

· Non-commercial services for the administration of small and/or complex estates and trusts; and

· Other non-commercial public functions.

The amount which Public Trust was reimbursed by the Ministry of Justice for providing each of these services is not specified, but $4.3 million was paid in total under the output agreement in the last financial year. It might be assumed that the $75 per will charge covers the Public Trust costs of preparing a will, and that is the rate for reimbursement – giving a ceiling of around $1.78 million for the 23,848 wills Public Trust worked on.

Has the Law Society ever said anything?

Back in 2001, the Law Society made extensive submissions on the Public Trust Bill, which created the stand-alone entity which exists today. NZLS supported a free will service for people who couldn’t otherwise afford wills, but wasn’t happy with the notion of Public Trust being given a competitive advantage at taxpayer expense.

The NZLS submission, presented by Ian Haynes, said that the Bill created a situation which was unduly favourable to Public Trust, unfair to its competitors and not in the public interest. The NZLS suggestion – which was not followed – was:

· Limiting the free will-making service to persons of modest financial means;

· Eliminating the requirement that Public Trust be appointed executor;

· Extending the free will-making service to other approved persons who would be reimbursed by the Crown on a basis similar to Public Trust.

How important is Public Trust in the wills and estates markets?

The latest Public Trust annual report says that in the year ended 30 June 2010 it prepared 9,198 new wills and revised 14,642 wills. Public Trust carries out regular research into both market share and customer satisfaction, and the report says Public Trust had a 15% share of the wills market and 13.9% of the estates (probates) market. The wills market share rose from 12% in the previous year, while estates was slightly down from 14.0%.

Where does your own practice sit in market share?

Without access to Public Trust’s market research findings (which are stated to be commercially confidential) it’s easiest to work out the size of the estates market. This has to be limited by the number of deaths in New Zealand. The latest Statistics New Zealand information shows that in the year ended 30 June 2010, there were 28,842 deaths registered in this country. This would indicate that around that number of new estates are available for administration and grant of probate each year.

A Consumer magazine survey of estate administration costs in April 2010 found Public Trust gave the lowest quote for administering a “simple estate”, with $4,250 plus disbursements. While law firms weren’t surveyed, it appears that anything from Public Trust’s figure upwards is possible. At a high level, it is possible to estimate the New Zealand estate administration market is worth $224 million annually.

For wills, if Public Trust has around 24,000 wills on the go and has a 15% market share, it looks like around 165,000 wills are either made or remade each year. Placing an average value on these is difficult as many practitioners also offer a free will service, but using Public Trust’s $75 charge as the value which can be placed on a simple will means the New Zealand wills market is potentially worth $15 million annually.

By Geoff Adlam, New Zealand Law Society.