Partner’s Opinion – Simon Wing
2021 brought significant changes to the Trust Act. These include that Trusts must be administered and run properly and that beneficiaries are kept informed of Trust actions.
When a Trust is set up, the settlors have an ultimate outcome for the Trust—the reason why the Trust was created, such as wealth protection or passing assets to the next generation. To ensure this outcome is achieved, you need to ensure that the Trust is run properly right from the start.
An important first step is selecting the right trustees. I encourage careful consideration of the initial trustee composition, as well as when considering replacements. Don’t forget about the independent trustee (usually your accountant, lawyer, a family friend or relative) who should understand family dynamics and can help mediate issues. The independent trustee must be involved with all Trust decisions. This helps strengthen the Trust position as a separate entity from the settlors (often “Mum and Dad”).
I always recommend trustees discuss the ultimate intentions of the Trust with beneficiaries earlier rather than later. These can be difficult conversations, but they give trustees the ability to manage expectations while they are alive. If this is left until after the Settlors/Trustees have passed away, this can lead to conflict within the family, which is the last outcome that any parent wants. In relation to this, the settlors should complete a Memorandum of Wishes to help new trustees understand the settlor’s ultimate outcome they wanted for the Trust assets if the settlors pass away.
I recommend meeting at least once a year to discuss the current position of the Trust, changes in beneficiary circumstances and needs, and investment or divestment opportunities. This can be done when the annual accounts are reviewed, and can include other trusted advisors such as your lawyer, banker or family friend. These meetings may need to be more frequent if the Trust is an active Trust or there are major changes occurring, such as property sales/purchases or distributions to beneficiaries.
Documenting the trustees’ decisions and meeting minutes is important in case they are ever challenged in the future. Regularly reviewing the Trust position helps decision-making and if gifting should be completed to protect family assets.
Ultimately, a Trust must be managed and maintained properly throughout its life if you want it to function eff ectively when you need it most.
