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Trusts Explained – What you need to know

1 October 2015

What does it take to be a trustee?

For most people, setting up a trust is the end result of a long and sometimes complicated process, understanding the various parties that create the trust relationship and determining how it should be best structured

The good news is at the end of the process, with the trust in place, all of those concerns or problems you had which prompted you to set up a trust in the first place should be alleviated. But does it end there? Can you simply put your trust deed into the third drawer of your desk at home and not have to look at it ever again?

The answer is a resounding “no”.

Trusts can almost be regarded as living, breathing things, needing care and attention to ensure that they remain effective. Too often we see clients who have taken on the mantle of being a trustee by themselves, either not undertake any action in respect of the trust’s administration or worse, mix the trust’s assets with their own. This can have some disastrous consequences.

The problem for most is that the assets you own as a trustee need to be dealt with separately from your own personal assets. Remember that when you established the trust, you transferred the legal ownership to yourself in your capacity as trustee. You were wearing two hats. It is very important to remember which hat you are wearing whenever you do anything that relates to the trust.

For example: when you pay the rates on the house you transferred to the trust, are you paying it from the trust’s bank account or are you paying it from your own? When you pay for the family holiday and take funds from the trust to do so, are you making a distribution or is it a loan and if so, what are the loan terms?

In addition, it is vital that such decisions of the trustees are recorded properly. There is nothing that requires you to record every move you make as a trustee, but good governance would support having clear evidence of any major decisions, especially if the trust deed says you should.

So, when you do decide that the family holiday should be paid for by a distribution from the trust, you should ensure that:

The trust deed provides you have the power to make a distribution,

  • You have the money to be able to make the distribution, and
  • You have considered all of the circumstances and decided that it really is in the best interests of all of the beneficiaries.

It is then important to record the decision either by way of written resolution or minute.

Trusts are a bit like insurance. Ask yourself how you would feel if you drove around the corner to find your house on fire only to discover you had let your insurance policy lapse. It is the same with a trust, and unfortunately you cannot open the drawer expecting it to be ready to leap to your protection if it has been sitting there gathering dust.

Many of our clients look to use one of our trustee companies to overcome these problems. It provides you with a sense of comfort that all the money you have spent setting the trust up, will in fact be of value further down the line.

When we provide one of our trustee nominees, we will make sure that we meet with you annually to cover any on-going concerns you have. It is time to pull that trust deed out of the drawer and give it a good old dusting to ensure that it remains as effective and valuable as it can.

 

Source: InBrief SPRING 2015

Author: Wayne Pearson

InBrief Spring 2015

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