Ignorant trustees run risk of nasty surprise in court
Trusts are everywhere in New Zealand but many are so badly run they would be vulnerable to legal challenge. reports.
There are about half a million family trusts in New Zealand, and many of the trustees are asleep at the wheel.
People set up family trusts to own the likes of family homes, baches, boats, shares in the businesses and to receive and pass on inheritances.
But a nationwide survey of trustees by Perpetual Guardian found that if running a trust could be compared to driving, many of us are less Lewis Hamilton than Mr Bean.
Although The Future of New Zealand’s Estate Planning report found no lack of confidence – nearly nine out of 10 trustees (86 per cent) felt they were doing a good job – fewer than half (42 per cent) were aware of recent law changes and court rulings.
New Zealand has one of the highest rates of family trust use in the world, with almost one in five people (18 per cent) telling the survey researchers they ‘‘had’’ a family trust, and half of those who do not currently have one saying they expected to eventually set one up.
Trusts are most common among wealthier, home-owning families with assets to protect, and among people whose net wealth is more than $1 million.
The smart money isn’t always being clever about the way it is operating its trusts.
The survey of 1223 people found a third of trustees didn’t know what was in the trust deed they were operating under.
The deed is effectively the ‘‘road code’’ setting out what the trust is for, and how it should be run.
And only 60 per cent of trustees met at least annually. Fewer than half (49 per cent) kept an up-to-date minute book.
Jonathan Cron, general manager of New Zealand Trustee Services, which is owned by Perpetual Guardian, has been reviewing trusts for 20 years.
He has created a seven-point checklist, available online, which can help trustees spot any glaring faults in the way they are carrying out their duties.
But, he says: ‘‘If the answer to one or more of the questions is ‘no’, it is likely there are other issues with the trust that need to be addressed.’’
One trustee who knows his legal duties is Chris Lawrence, a retired Aucklander who built wealth through business.
‘‘I’m very thorough about this because what success I have had I like to look after, and I very much want to find a way to help the next generation,’’ he says.
Lawrence is the father of two adult daughters, and he’d like to help them secure their futures in what feels to him like an increasingly tough and unforgiving world.
He believes that to thrive, human beings need financial stability. He also believes that a successful family is one where each subsequent generation is happier and wealthier than the previous one.
For Lawrence, a family trust is a way of protecting the wealth he has built.
‘‘It’s no use working hard and learning to go without, if you live in a state where it is just ‘scrambled eggs’,’’ he says, referring to the chaos many family trusts appear to be in.
The Lawrence family trustees meet at least once a year. Any financial transaction requires the agreement of all trustees.
Plus, all trustee decisions and transactions are properly recorded in a minutes book.
Perpetual Guardian hasn’t created its seven-point checklist for the national good.
It’s a business tool designed to encourage failing trustees to pay for a full trust review.
Cron says many trusts he reviews are so badly run they were unlikely to be robust enough to stand up to a challenge in court, if an ex-partner or creditor tries to crack them open, a process commonly dubbed ‘‘trust-busting’’.
"Trusts are fantastic tools for asset separation and protection but only when properly maintained." Grant Kemble Perpetual Guardian chief executive