Rob and Lyn had set up a trust fifteen years ago on the advice of their accountant.
They owned their business 50/50 with another couple and at the time they set their trust up it was part of a restructure of debt, sorting out the shareholding arrangements in the business and asset protection. Not only was the trust a helpful form of asset protection with Lyn being a director in the company, it also gave them some tax efficiencies, as Rob was a stay-at-home Dad and income was able to pass through to him from the trust at a lower tax rate.
Rob and Lyn also liked having their trust as an asset planning tool. As well as their business, the trust owned their family home and bach and some other investments in managed funds. The bach was an asset that they wanted to be held long term for their two daughters who were now in their mid to late 20’s.
The trust provided the perfect vehicle to ensure that the bach could be kept in the family and the way they had worded their wishes, it would be retained unless a majority of their grandchildren wanted to sell it in the future. The trust also provided a great platform for helping their two daughters financially. It was a much easier conversation to have with their daughters’ partners that the trust required them to enter into a loan agreement, rather than if it was just Rob and Lyn!
Rob and Lyn’s accountant had always been their independent trustee. They had had a very good relationship with him over the years and they felt like their trust was well managed. However, their accountant had recently retired and sold his practice to a bigger firm. The new accountants said that they were no longer wanting to act as trustees, as the area had become so specialised and they thought the risk was too great. They suggested that Rob and Lyn set up a company where they were the only directors and shareholders of and that the company could be the trustee of the trust. Rob and Lyn thought that this sounded a bit odd – after all these years of having a well run trust they didn’t want to jeopardise their position by putting in place a structure that made them feel uncomfortable.
They decided to ask their lawyer what he thought. Their lawyer was lovely – he described himself as a GP lawyer, but had helped them with all the property transactions and their trust work over the years. He advised that due to the complexities of the trust law now, he was now advising that his clients seek specialty legal advice from someone who specialised in the area, so Rob and Lyn made an appointment with the lawyer he recommended.
The specialist lawyer explained to them that one of the most important things in modern trusts was having an independent trustee. She said it was very difficult to argue that your trust is an entity independent of you if you are the sole trustees. Further, even if it was a company, not you personally, if there was no independent element of your trust (i.e. an independent director or shareholder) it would be very hard to say that the trust was not just you, if it was ever challenged.
She said that these days “self managed” trusts were really a thing of the past and while it was not always convenient, a good independent trustee would help manage the trust and ensure that every administrative “i” would be dotted and “t” crossed. There are so many benefits to having a trust for those who need them that any pain associated with having an independent trustee would be outweighed by the gains of having a properly run, independent trust.
The lawyer also explained that lots of trust deeds do not allow a sole corporate trustee. It was important to read the trust deed and see if a company was able to act as the sole trustee of the trust. If not, then the trust deed may have to be varied, if possible, or they would need to re-think the structure of the trusteeship.
Rob and Lyn asked whether their eldest daughter could be a trustee. The lawyer cautioned against having your children as trustees while you are alive. In most cases, she said, people don’t want their children to say what they can and can’t do with the trust assets, and sometimes it may not be your children you have to worry about – it can be the people that influence them, i.e. their partners.
After the meeting Rob and Lyn decided to appoint the specialist lawyer as the independent, professional trustee on their trust. They knew they were in safe hands and that the administration of their trust would continue to be well managed, and that they wouldn’t have to worry.
For Specialist trust advice don’t hesitate to contact Tammy McLeod or the Trust team at Davenports Law.
DAVENPORTS LAW, 331 Rosedale Road, Level 1, Building 2, Albany, T: 09 883 3284, www.davenportslaw.co.nz
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Published 3 September 2021