The person or people wanting to create the Trust (the settlor) transfers property to appointed trustees.
The trustees will be the persons who hold the property on the terms of the Trust.
There must be at least two trustees, but preferably no more than four.
At least one of the trustees should be an independent trustee, unrelated to the settlor. This is not required by law, but it helps to ensure the Trust is genuine.
We suggest an independent trustee service through a company set up specifically for your Family Trust.
The terms of the Trust should be recorded in a Deed of Trust. This will record who the Beneficiaries of the Trust are. Typically these will be the settlor’s children, grandchildren, other family members, charities, and even the settlor himself or herself. This will contain details of the powers which the trustees may exercise.
These powers will include directions about (a) The way trustees are to invest funds (b) The ages at which beneficiaries may receive benefits (c) The way in which new trustees are appointed and (d) Specific directions about any particular asset.
Once the Trust is formed, assets can then be transferred to the Trust. There are various ways to do this, but it is essential that it is done correctly to avoid any unnecessary taxes and to survive challenges from creditors, government departments, and other claimants in the future.
Trust Maintenance
There is a lot of publicity today about sham trusts or trusts that are not genuine.
These are trusts that have either been set up with flaws, or have not been maintained properly by the trustees.
There are many well-meaning people who have set up a Family Trust and then forgotten completely about it, going on their business as usual.
This is a recipe for disaster!
For a Family Trust to be genuine it must be properly maintained and this requires careful planning. You should be giving on-going consideration to the following:
Trustees
Independent trustees are an important aspect of the credibility of your Trust.
However they are not the total answer. As the trustee of your Trust, you hold the key to credibility by acting professionally at all times.
Records
You need to keep proper records of the Trust separate from your own including
(a) A separate bank account (b) minutes of decisions (c) records of transfer of assets to your Trust (d) all transactions (e) all loan repayments (f) any capital and income distributions and (g) any forgiveness of debts.
Each Trustee should maintain a copy of the Trust Deed and Letter of Wishes. They should also be aware of what other Trust documentation exists and where it is held.
Accounts
Proper accounts should be kept for the Trust, which will include an accurate reflection of the value of Trust assets. Annual accounts should be approved by the trustees.
Tax & Gift
Tax returns need to be filed for the Trust.
Although gift duty was abolished in October 2012, depending on your circumstances you may still need a gifting programme. You should use an appropriate address for any correspondence for the Trust (for example, The Braden Matson Family Trust, c/o Braden Matson, 15 Putney Way, Manukau 2104).
You should be in on-going consultation with the other trustees about decisions of the Trust.
Review
You should conduct an annual review of your Trust including investment policy and strategy which should be recorded. This helps to ensure that the trustees are acting wisely and prudently as is required.
This review should also include a review of the financial position of the beneficiaries as the trustees must act in their best interests.
Schedule
The Trust should have a schedule for any gifting programme, future loan repayments, income distributions, capital distributions, and annual review.
Summary
While this may seem complicated, it is actually reasonably straight forward if you have the right people to help you arrange everything.
Braden Matson is Family and Commercial Lawyer at Law & Associates (incorporating part of Wood Ruck Manukau) based in Auckland. The above is the second and concluding part of two articles, the first of which appeared in our June 1, 2012 issue.
