Are your kids kicking up over the Family Trust?

I was recently talking with an accountant who is heavily involved in Family Trusts. He stated that one of the issues increasingly around Trusts is with beneficiaries challenging the Trust document, and more importantly, the list of wishes. Beneficiaries are more times than most, children of the Settlor. Discretionary beneficiaries want to know what is happening.

At times, beneficiary's solicitors are requesting copies of the Trust document so as the beneficiary can uncover what the Settlor's wishes are. It is important to realise that there is conflicting case law as to whether you have to give a copy of the Trust document to a beneficiary's solicitor. Australian case law states you do not have to. New Zealand case law says that you probably should.

Attached to the Trust document is usually a list of wishes which are those of the Settlor. These wishes may include how the funeral is to look, how the living partner and the children are to be provided for. Sometimes a Settlor may wish to have a lump sum made to each of the children and sometimes it is incumbent on the Trustees to borrow to do this. A Memorandum of Wishes is not binding and really is just the hope of the Settlor. If circumstances change then the Trustees can do what they want.

A Trust document is like a living will and the formation and understanding of the original Trust document is crucial. Each Trust document should be structured to suit each individual's personal circumstances; there is not just one trust for all.

Choose your Trustees wisely. It is pertinent your Trustees have a basic understanding of Trust law and property transactions as well as having good old common sense. You need to have a professional Trustee alongside the family Trustees, this gives you a healthy balance.

The best five things you can do as a Trustee are:
  1. Ensure there are minutes and recorded notes kept of all meetings. These need to be held securely by one of the Trustees but ensure that a copy is given to each Trustee after any meeting.
  2. Accounts need to be prepared in a timely manner by a person who is an expert in preparing such documents. The accounts need to be produced within six months of the balance date and all Trustees need to sign the balance sheets and again, hold copies.
  3. Where a decision is to be made outside the expertise of a Trustee then the Trustees are advised to obtain independent advice.
  4. I believe that Trustees should be paid to do their work. In this mercenary world if someone is not paid to do something, they may give an ill-considered opinion based on lack of time and effort because there was no remuneration.
  5. Before appointing Trustees make sure they understand basic Trust law, property transactions and have some common sense. Ensure there is at least one professional Trustee alongside family Trustees to cover most situations.
Second Relationships. It is clear that a lot of the litigation and problems start where there are second marriages and second relationships. This seems to bring a raft of problems and anybody who has been in that position needs to be very careful that they have structured their Trust's property correctly and have clear lines of communication and expectations.

And what about sham Trusts? These are Trusts that have not been managed correctly. Administration is not kept up, there are no notes made and the Trustees treat the Trust Assets as if they were theirs. This is really a sham Trust and would be subject to legal scrutiny. Increasingly, Trusts and Trustees are going to be challenged and it is important to ensure that you get it right from the start.

Why and when would you form a Trust? It is fair to say, you cannot take your land to the grave with you. If you have any property or asset, big or small, you need to think about forming a Trust and getting proper succession in place. There are many reasons for this and again, each reason would be specific to your personal situation. It is never too late to form a Trust, although some people may think it is. More than that, it is never too late to obtain information or professional advice on how Trusts could benefit your family for generations to come.

In summary, there are a number of issues around family Trusts. They are subject to legal scrutiny and challenge. The challenges and enquiries seem to arise where there is a second relationship involved by the Settlor and when members of previous families feel that they have been let down, so to speak.

It is important to manage your Trust correctly and meet the minimum requirements of maintaining Trust documentation, etc. It is important that you have a professional to assist with the management and requirements so that the Trust is not to be seen as a sham.

For those who do not have a Family Trust this is probably a timely opportunity to think about how many years of living you have left and realise you can't take your property with you. A Family Trust is the best way of transferring the property forward into the next generation without undue stress.


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