ESTATE PLANNING
Annual Trustee Meetings: Explained
Hello Readers
I hope you’ve enjoyed your Christmas break and are now fully rested, ready to tackle the New Year.
Usually most of us have some spare time at the beginning of a new year and I recommend some of this time being used by Trustees to conduct an Annual Trustee Meeting (”ATM”).
An ATM is our way of of taking care of your Family Trust to protect you, your family and your future.
So what exactly is this and how does it help the Trust?
Well, Trustees have a duty at law to annual review the affairs of the Trust so by holding this Meeting they are satisfying their duty. Additionally, this meeting will go a considerable way to ensuring the successful operation of the Trust and can be instrumental in avoiding a Trust failure.
The Value of an ATM
To demonstrate how an ATM can help a Trust, let’s take the example of Mr and Mrs Boiler. They were the Trustees of the Boiler Family Trust which contained the following assets:
* Family home;
* Shares in Boiler Orchard Limited; and
* $47,000 in cash on term deposit.
When I looked at this Family Trust it initially appeared to be in good health. But it soon became apparent when reviewing the financial statements and talking to the Trustees that the assets of the Trust were under threat. You see the liabilities of the Trust had increased in the last two years. I wanted to know why that was.
The Trustees told me that the Trust’s orchard business had done well over the years but in the preceding two years a large supermarket had come to town. When this occurred, the town’s population purchased all the goods they needed from the supermarket. T
This meant the produce the orchard produced wasn’t selling and what was selling had to be sold at a heavily discounted price. As a result, the Trust had suffered losses in the last two years and had to increase its Bank borrowings just to serve debt.
I was not the Professional Trustee of this Trust but Mr and Mrs Boiler had come to me for advice. I immediately recommended the orchard be sold. It was a case of selling in an orderly fashion or in another year, having the Bank foreclose and sell. The latter option was not attractive. A sale proceeded and financial disaster was avoided.
Family Trust Lessons
What’s interesting about this case is if this Trust had a Professional Trustee who had conducted with their co-Trustees an ATM, two things would have been identified.
First, the news that the supermarket was arriving in town would have been aired.
Secondly, the Professional Trustee would have considered this broadcast and discussed the need to sell the orchard business. The Professional Trustee would have given this advice because it would have been clear what was going to happen.
Hopefully, all Trustees would have agreed to sell the business and the need to increase debt would have been avoided. Overall, the Trust would not have suffered the loss it did as the Trustees could have taken action much sooner than what they did.
I hope you can see from the above example the value in holding an ATM.
ATM Checklist
At the Meeting several points should be addressed. These are as follows:
- Trustees should identify and discuss the objectives of the Trust and determine whether those objectives should be carried on in the forthcoming year;
- A schedule of assets and liabilities of the Trust should be completed and analyzed. Trustees should in particular discuss how well the investments are performing and how comfortable they are with the level of debt the Trust is carrying or exposed to.
- Trustees should check the assets of the Trust are well maintained and if maintenance is necessary, should make a list of what is required and who will be instructed to carry out maintenance out.
- All insurance policies for the assets of the Trust should be checked to ensure insurance cover is adequate. Policies must be checked that they are held in the A report by the Professional Trustee and the findings of the Financial Statement Review they have undertaken, should be given to all other Trustees.
The above list of points is not exhaustive but merely suggestive. This is because the matters discussed at each Trust’s ATM may differ depending upon the nature and objectives of the Trust.
Lastly and most importantly, once the ATM has been completed, the Minutes of the ATM should be prepared and signed by all Trustees.
Those Minutes should contain the decision the Trustees have unanimously made regarding whether or not to retain the current assets of the Trust given the nature of those particular assets and taking into account the objectives the Trustees have. In my experience, this task is best carried out by the Professional Trustee.
I hope this information spurs you on to holding an ATM. As always, if you have any queries, would like a review of your Trust or need help, just contact us.
A review of your Trust and structures may end up saving you money and a lot of heart-ache. We work by phone, email or skype for your convenience.
Best wishes for the New Year.
Janet Xuccoa BCom LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
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The Beneficiaries Want The Money…Help!
You’ve worked hard for what you have and to ensure your assets are protected, you’ve gone to the trouble of putting them in a Family Trust. Now those assets are protected for you and your loved ones – for the Beneficiaries of the Trust.
But what happens when the Beneficiaries want the assets? Can your children or say other Beneficiaries, such as your siblings, get access to those assets? Can they find out what’s in the Trust and what they’re entitled to? Are they entitled to know all about the Trust and its affairs?
Unfortunately, human nature being what it is, this issue comes up more than most people would like. Usually, like all human being issues, feelings of suspicion, distrust and jealousy underline the problem. And just like a lot of issues, responding to the problem in either a confrontational manner or limiting the communication between Trustees and Beneficiaries doesn’t help.
What is helpful is understanding what information Beneficiaries are entitled to and then, having an open dialogue with an aim of improving matters – maybe even improving the relationship which is frequently at stake.
The Courts Decide
Traditionally, what a Beneficiary could and couldn’t see was based on whether they were a Fixed or a Discretionary Beneficiary. Fixed Beneficiaries had an entitlement to the assets of the Trust and so had a right to view all Trust documents, including financial accounts. Discretionary Beneficiaries on the other hand, had only an entitlement to be considered by the Trustees when those Trustees were handing out cash, capital and assets. As such, Discretionary Beneficiaries had no entitlement to view Trust documents.
Thankfully, we moved from that position. Now it doesn’t matter if a person is a Fixed or a Discretionary Beneficiary because now, it is up to the Courts to determine what documents a Beneficiary is entitled to see.
Under the ‘inherent jurisdiction’ approach a Court says it has the ability to supervise and if necessary, to administer a Trust and therefore, a Beneficiary has a right to approach them to seek disclosure of Trust documents. Ultimately this means that it is up to the Court’s to determine what a Beneficiary can and cannot see.
Courts are mindful creatures. They implicitly understand human relationships – after all they deal with human issues every single day. With this understanding, they exercise their discretion and engage in a bit of a balancing exercise. They weigh up the competing interests of different parties (eg: trustees and beneficiaries and third parties) and consider a myriad of issues including personal and commercial confidentiality, parties privacy, consequences of disclosure, etc.
Additionally, they are aware that Trustees do not have to disclose to Beneficiaries their reasons for exercising their discretionary powers. This point is particularly important because it can have an effect on what the Court’s ultimate decision is – what the Court will decide a Beneficiary can and cannot see.
Sometimes, at the end of this balancing exercise, the Courts decide that disclosure should be limited and safeguards should be put in place. Often this is to protect the relationships within the family.
Look What The Beneficiary Found
In the past, the Courts have said the types of information listed below should be disclosed to Beneficiaries. Remember, each case is decided on its own merits so the items noted on this list are not set in concrete.
* Deeds of Trust;
* Deeds of Variation of Trust Deed provisions;
* Deeds of Changing of Trustees;
* Deeds of Resettlement;
* Legal opinions relating to the interpretation of a Trust Deed’s provisions;
* Legal opinions with respect to a Beneficiary’s rights;
* Valuations of assets of the Trust; and
* Financial accounts of the Trust.
Some Secrets are Better Left Just That - Secret
Historically, under case law, Courts have said that Beneficiaries do not have a right to the types of information I have noted below. Read this list with the above Caveat - Courts can decide something different depending upon the facts of the case before them.
* Letters from Settlors to Trustees;
* Notes from Settlors to Trustees;
* Memorandum of Wishes made by Settlors;
* Notes made by Trustees setting out their reasons for the decisions they have made; and
* Statements which show the motives of Trustees.
Raiding the Trust
So the big question is now that the Beneficiaries have the financial accounts in their hands, what can they do with that information? Well, one common tactic is they can apply to the Courts for an Order, which would state that monies due and owing to them are in fact, paid to them. For this reason, it’s important to deal with the allocation of Trust income each and every year.
Any income that has been allocated to a Beneficiary and shown as such in the financial accounts may be called by that Beneficiary to be paid to them upon them becoming adults. A Court Order can also require this. Hence, in my view, only income that is to be spent on a Beneficiary should be allocated to them in the Trust’s financial accounts. Failure to allocate income in this manner may result in a Beneficiary requiring a Trustee to pay them the surplus income that appears as a credit in their Beneficiary account shown in the financial accounts of the Trust.
Summary
Like all human problems throughout time, good dialogue can solve the insurmountable. This is because open communication fosters goodwill and trust between people. If goodwill and trust exists, there is less of an opportunity for secrecy and distrust to creep in.
Trustees and Beneficiaries are human beings and human beings respond positively to people being honest and clear with them. So the order of the day is to seek opportunities to promote positive communication between each other.
In my view, it is really irrelevant whether a Trustee has to legally show a Beneficiary a Trust document or not. If a Beneficiary has had to approach a Court to get an Order to see the Trust documents, the relationship between the Beneficiary and the Trustee is in trouble and that is where the real problem exists.
Being clear and honest with Beneficiaries when they ask about a Trust’s affairs is a sensible thing to do as it preserves the relationship. Failure to do so will simply create suspicion and exacerbate tension. Remember … a Trust, is about relationships and about looking after assets for the future. So in the name of Trust, taking time to care for relationships and teaching Beneficiaries about money, assets and protection will ultimately ensure the future that you are working hard to provide for is kept secure.
Janet Xuccoa, BCom LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants
Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955
P.S. Did you like this article? Go ahead and sign up to our free newsletter and get tips, updates and useful information to help you protect your assets and grow your net worth.
Family Trusts & Estate Planning
When a Family Trust is established it is important to note that it usually runs for a period of up to eighty years. In most cases, this means the Trust will outlive the people that set it up.
This of course is part of the intention of establishing the Trust in that it is often seen as the cornerstone of an estate plan whereby individuals pass their assets onto children and chosen beneficiaries.
This means that in conjunction with the Trust, it is critical that you also execute new Wills and a Memorandum of Wishes for the Trust.
Wills need to be prepared at the time that a Trust is established because Wills deal with your personal assets. Once you have a Trust (that you intend to own many of your private assets) your Wills need to be redrafted to reflect this.
Principally your Wills should now direct your assets into the Family Trust on death so that they are not part of your estate and do not pass to your children or chosen beneficiaries personally.
You will often also find that your Trust Deed reserves certain powers for you including the power to appoint and remove Trustees and gives you the ability to name who you would like to succeed you in holding these powers in your Will.
Janet Xuccoa
All the best,
Janet Xuccoa BCom LLB
Trust Director
FamilyTrusts.co.nz
Gilligan Rowe + Associates Ltd
Learn more about Janet
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More Information?
If you have any questions or queries relating to asset protection or trusts you can Request-A-Call for a no-risk chat or to set up an interview. Otherwise just call Janet Xuccoa, Trust Director and Partner of Gilligan Rowe & Associates Limited. Janet can be contacted by emailing janet@familytrusts.co.nz or telephoning (09) 522 7955.
