Is your Family Trust Kosher?

Over the years, we have heard comments such as the following from people with trusts.  Of course this is before we have had any involvement with their trusts.  "I thought once I signed the trust deed I was protected for the future", "No one told me I needed to keep paperwork for my trust", "My independent trustee just signs what I tell them", "Although I'm a trustee someone else takes care of all that", "The assets are really still mine to do what I like with", "I just pay all of my bills out of the trust".  

Too many people have established trusts and simply carried on acting as they did before the trust was in place.  This is exactly what those trying to challenge your trust will be trying to prove; that no real trust relationship exists.  Trusts can be very good, but they need to be properly managed.  One of the aspects that receivers for the various finance companies really scrutinize are trusts that the former directors are either beneficiaries or settlors of. 

The following are some simple questions, which can determine the management health of your trust.  The results are based upon the number of times you answered ‘No’, these are then added up with the final number being an indicator on how your trust fares. 

• Do all Trustees have a personal copy of important trust documentation such as the Trust Deed?
• Have all Trustees read the Trust Deed in the last 12 months?
• Are all Trustees actively involved in all trust decisions made?
• Has a formal meeting of the Trustees been held within the last 12 months?
• Have all Trustees decisions been recorded in writing?
• Have financial statements been prepared for the trust each year?
• Has gifting been completed within the last 12 months?
• Do Trustees have a written investment policy for the trust?
• Does the trust have a separate bank account and IRD number?
• Does the trust have a mortgage?
• Is any trust property still the same as when it was purchased by the Trustees? (i.e.  no improvements or alterations have been made)
• Have all insurances been transferred to the Trustees and acknowledged in writing by the insurer?

If you scored 0 – 2 your trustis likely to be one of the 25% of trusts that are being managed well and therefore able to withstand a challenge.  Scores 3 – 5, there are likely to be a number of areas that require attention to ensure your trust continues to provide protection.  6 – 8 there is a high chance your trust could be successfully challenged.  The Trustees should seriously consider an independent review.  Over 9, the trust is at serious risk of being successfully challenged.  Immediate action should be taken to review the trust.

Disclosure:As required under the Securities Markets Act 1988 and the Securities Markets (Investment Advisers and Brokers) Regulations 2007, aPascoe Barton disclosure statement is available on request free of charge, by contacting Pascoe Barton Limited on (07) 306 0080 or from www.pascoebarton.co.nz.