Some guidelines for family trust administration in New Zealand
Plenty of Kiwis have heard of the benefits of creating a family trust believing that they are able to shelter and protect their assets. That is true in the broadest sense. However, setting up a trust correctly is one thing; administering a family trust correctly is quite different.
What does a family trust provide?
Before we look at the administration of a family trust it makes sense to review how a family trust works so that it provides the benefits people are looking for.
In most situations people have a trust so that they can protect their assets against any personal claims that may be made on them. In essence, they distance or separate themselves from the legal ownership of those assets. Therefore, the trust must be administered in a way that maintains that separation. This is where many people run into trouble because they act as though they are still the owners. Instead they are trustees and quite often also a beneficiary.
What does a family trust provide?
Before we look at the administration of a family trust it makes sense to review how a family trust works so that it provides the benefits people are looking for.
In most situations people have a trust so that they can protect their assets against any personal claims that may be made on them. In essence, they distance or separate themselves from the legal ownership of those assets. Therefore, the trust must be administered in a way that maintains that separation. This is where many people run into trouble because they act as though they are still the owners. Instead they are trustees and quite often also a beneficiary.
If people do not administer the trust in that way it is easy for people to challenge the true nature and intent of that trust. Creditors, family members and especially the IRD have all successfully brought challenges in the High Court and so all the hoped for benefits of a trust are lost.
Family disputes
A very common issue that lawyers are presented are disputes over family trusts. Some people may have been excluded as a beneficiary and this is often the case in relation to a former spouse.
One of the key requirements of a trustee is that they act in an impartial way so as to be fair to all the beneficiaries. Frequently though other family members who are not trustees believe that the actions of the trustees is not in the best interests of all the beneficiaries.
Fair and proper administration of a trust can avoid this stressful and unsettling situation. So what are the administrative duties required for a trust?
Family trust administration duties
Trustees are required to ensure that the trust acts in compliance with eh laws of the land and in an equitable way towards all beneficiaries.
Among those tasks are:
· An Annual Meeting to receive the accounts of the trust. These accounts should be prepared by a trust accountant.
· Pay any taxes that are due based on those accounts.
· Review the investments of the trust.
· Distribute any income as required by the Trust Deed.
· Take and record minutes of meetings.
· Record Resolutions of any decisions that are taken.
· Appoint professional advisers where necessary such as the accountant.
These tasks are generally quite mundane but they are essential for the trust to maintain its status as a shell to protect the assets placed within it.
Failure to handle any of these administrative tasks can result in the status being challenged in court.
Unfortunately, many people find the record keeping and the procedures too constraining or too onerous so do not keep the records or make decisions in the right way. This has led to many trusts being challenged in the High Court with the result that the Trustees can be removed, may be fined or even the trust declared a sham. As a result the protection benefits of holding assets in a trust will be lost.
Family disputes
A very common issue that lawyers are presented are disputes over family trusts. Some people may have been excluded as a beneficiary and this is often the case in relation to a former spouse.
One of the key requirements of a trustee is that they act in an impartial way so as to be fair to all the beneficiaries. Frequently though other family members who are not trustees believe that the actions of the trustees is not in the best interests of all the beneficiaries.
Fair and proper administration of a trust can avoid this stressful and unsettling situation. So what are the administrative duties required for a trust?
Family trust administration duties
Trustees are required to ensure that the trust acts in compliance with eh laws of the land and in an equitable way towards all beneficiaries.
Among those tasks are:
· An Annual Meeting to receive the accounts of the trust. These accounts should be prepared by a trust accountant.
· Pay any taxes that are due based on those accounts.
· Review the investments of the trust.
· Distribute any income as required by the Trust Deed.
· Take and record minutes of meetings.
· Record Resolutions of any decisions that are taken.
· Appoint professional advisers where necessary such as the accountant.
These tasks are generally quite mundane but they are essential for the trust to maintain its status as a shell to protect the assets placed within it.
Failure to handle any of these administrative tasks can result in the status being challenged in court.
Unfortunately, many people find the record keeping and the procedures too constraining or too onerous so do not keep the records or make decisions in the right way. This has led to many trusts being challenged in the High Court with the result that the Trustees can be removed, may be fined or even the trust declared a sham. As a result the protection benefits of holding assets in a trust will be lost.
A convenient way to administer a family trust
People will use a family trust lawyer to set up their trust but they don’t often realise that the law firm may have a trust administration department too.
Trust laws are complex so it takes a lot of time to fully understand the tasks that need to be done and make sure they are completed properly. Yet the trust admin people in your law firm are paid to understand the intricacies of trust law. So it is certainly worthwhile having a conversation with your family trust lawyers to see if they can administer your trust.
You can also make your lawyer a Trustee. They will certainly know the laws you need to adhere to but they will also be an independent trustee and can advise if any decisions might not be impartial.
So contact your family trust lawyer today.
People will use a family trust lawyer to set up their trust but they don’t often realise that the law firm may have a trust administration department too.
Trust laws are complex so it takes a lot of time to fully understand the tasks that need to be done and make sure they are completed properly. Yet the trust admin people in your law firm are paid to understand the intricacies of trust law. So it is certainly worthwhile having a conversation with your family trust lawyers to see if they can administer your trust.
You can also make your lawyer a Trustee. They will certainly know the laws you need to adhere to but they will also be an independent trustee and can advise if any decisions might not be impartial.
So contact your family trust lawyer today.