Alice and Mike’s parents had set up a trust some years ago. The trust had owned their family home and also the shares in the family business. The trustees of the trust had been Alice and Mike’s parents, together with their lawyer. When the survivor of Alice and Mike’s parents died, their accountant had been appointed as a second trustee. Alice and Mike’s parents had left a memorandum of wishes stating that they wished for the trust to continue to benefit Alice and Mike.
By that time, the family home and business had both been sold and the trust had some term deposits, a commercial property and an investment portfolio with a reputable financial advisor. The trustees paid income out to Alice and Mike, but no money was made available for capital distributions.
Alice and Mike had vastly different circumstances. Alice was a single mum to two teenage boys. She worked part time and really struggled to make ends meet. The extra income from the trust was a huge help to her, but she had a large mortgage, as well as all of the costs that came with teenage boys (sports trips, school trips, university looming). Some of the capital would be incredibly useful to her to be able to reduce her debt and make life easier. Mike however, was a surgeon with a private practice. The only debt he had was on an investment property. Mike saved the additional income he got from the trust for his children’s tertiary education and had no real need of any capital.
Alice did some reading on the internet as to what could be done with the trust fund to give her and her boys more appropriate help and decided to suggest at the next trustee meeting that the trust be wound up and distributed to her and Mike. She sent an email to the trustees and was so surprised at the response of the trustees who said, no. They said that it was her parents’ wishes that the trust continue for the benefit of Alice and Mike and that they would not be winding up the trust. Alice was dumfounded – how were the trustees acting in her best interests?
Alice decided to get legal advice from a trust specialist who advised that the memorandum of wishes, while persuasive to trustees is not legally binding and so the trustees could consider winding up the trust. She also thought that if the trustees were not genuinely considering the needs of the beneficiaries, then Alice may have a case to make an application to the Court to remove the trustees and appoint new trustees in their place.
This case outlines the importance of having a relevant memorandum of wishes for the trustees of your trust, but also making sure you have appropriate trustees who can relate to the beneficiaries.