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In many instances these pro forma or outdated documents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.
Contact
Timothy
Orr