Talking Trusts: Tim & Bella
By Tammy McLeod
Tim and Bella had a family trust. Their accountant had been their trustee since the trust started. The trust owned their family home as well as investments they had made when they sold their business five years ago. Tim and Bella had since had three children, all in their twenties. Tim and Bella decided that they wanted to help their children with deposits on houses through the trust and made an appointment with their accountant/trustee to discuss.
John, their accountant, advised that he was looking to retire as a trustee from all of the trusts that he was trustee of. He suggested to Tim and Bella that they set up a trustee company and that they could be the only directors and shareholders of that company, to make things simple for them. Tim and Bella were a little uneasy about this as they had heard that an independent trustee was really important to make sure that their trust was robust. They decided to talk to their lawyer, who fortunately specialised in trusts, about the trusteeship and the loans to their children.
When Tim and Bella went to see their lawyer, she advised them that their instinct was correct – in order to keep a degree of separateness between them and the trust, it was advisable to have an independent trustee. She said that if they did have a trustee company as the trustee she would recommend having an independent shareholder or director of that company. However, their trust deed was an older trust deed she said, and didn’t allow for the appointment of a company as a sole trustee – this is something that has to be specified in the trust deed. If they went ahead with the company any decisions the company made as trustee going forward would be in breach of trust and voidable.
Their lawyer advised that this was a mistake that many people made and she had seen many situations where a company had taken on a sole trusteeship meaning that all decisions made by the trust over a period of many years in some cases, were invalid. Her advice was to appoint another independent trustee in place of their accountant who was retiring.