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What do you mean I'm not the trustee of mum and dad's trust?

By Andrew Steele and Timothy Orr - 30 Aug 2017

There are several hundred thousand family trusts in New Zealand. These often hold the financial 'nest egg' of aging settlors concerned ultimately to protect their assets during their lifetime and ultimately to benefit their children. While the 'parent settlors' are fit and healthy, the terms of trust usually ensure the trust assets are under their supervision and are often the trustees. The 'independent trustee', where present, is often relegated to a relatively benign role of simply reviewing and approving their co-trustees preferred course of action with regards to investment and distributions. From the settlor's children's perspective that's fine - after all - they often don't understand the distinction between assets that have been transferred into a trust and the parent's personal property.

But once the 'parent settlors' die or lose mental capacity, the professional trustee's hitherto 'benign role' can transform into primary control over the assets including how they are invested and when and to whom they are distributed. All too often the children may see the trust assets as their inheritance, so this transfer of control to the 'independent trustee' can be a source of suspicion, dismay and conflict. In many cases the 'independent trustee' is then confronted with a poorly drafted trust deed and a memorandum of wishes that has not been updated since the establishment of the trust. A common example is where the memorandum of wishes refers to the needs of infant beneficiaries, which is rather unhelpful where the beneficiaries being referred to are now adults in their own right and may even be parents themselves. The memorandum often does not accurately reflect the relationship between the 'parent settlors' or they had considered making, or withholding, further assistance from the trust.

In many instances these pro forma or outdated documents provide little useful guidance to the trustee who is suddenly left in control of the trust. This trustee is then required to determine the manner in which the trust is to be administered, the assets invested and/or distributed and to decide if it should be maintained or wound up. All too often the 'parent settlors' views as to which, if any, of their children or grandchildren are to receive funds from the trust, or how much, are simply not known and therefore cannot be carried out.

If you have a family trust and are about to or have retired from business, then we recommend that you take a fresh look at what happens when you can no longer 'control' what happens in the trust. Benjamin Franklin's axiom that "an ounce of prevention is worth a pound of cure" is as true for trusts as it is for life. We recommend you have your trust deed and supporting documents setting out your wishes and expectations reviewed by our trust team to ensure you have a robust plan for the future to avoid and minimise potential difficulties and conflicts within and outside the family.

Contacts

Andrew Steele

Timothy Orr

 

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