Do you give much thought to your family trust, other than to carry out your annual gifting at the direction of your lawyer? If not, then your in-action may mean that any protection gained by the creation of your family trust, is gradually being eroded.
The protections afforded by family trusts are being tested more and more by the Courts. The common theme of recent cases is that, if the affairs of a family trust have not been administered appropriately, the Courts are more and more likely to consider it an ‘alter ego’ or ‘sham’ trust. Creditors are therefore able to attack the assets of the trust as if they were personal assets.
The gifting process, although slow and tedious, has provided an annual purpose for the trustees to consider their family trust and what activities it may have undertaken over the previous year. However, now that gift duty has been abolished, annual gifting has become a thing of the past. Without this impetus to consider your trust, there is a very real risk that the trust deed and associated documentation, will be relegated to a chapter in the history books of your filing system, never to see the light of day again.
If you wish to maintain the integrity of your family trust and to benefit from the asset protection that it can offer, then it is very important that you do not let this happen.
We would recommend that you take the following steps to help maintain the integrity of your family trust:
- Ensure that you diary an annual date for the trustees to review the family trust to consider the trust assets.
- Ensure that the trustees, in carrying out their annual review, consider whether there has been any further advancement made to the family trust during the year. An advancement to the trust may include activities such as:
- alterations or improvements carried out to a trust asset (such as a house), but which has been financed by somebody other than the family trust itself;
- considerable landscaping work carried out to a trust property, but which has been financed by somebody other than the family trust itself.
- If further advancements have been made to the family trust, then it is imperative that these are recorded, whether as a loan or a gift (as appropriate). We will be able to help you with this. If no further advancements have been made to the family trust, then we would recommend that a trustees minute be prepared and signed by all of the trustees acknowledging that they have met to discuss the family trust, and that no further advancements have been made to the family trust.
- Ensure that all trustees minutes are kept in a trustees’ minute book, and that all correspondence received and made on behalf of the family trust (such as rates demands, etc), are filed carefully in your family trust file.
If you have any questions about your family trust and the way that you are, or have been, administering it, then we suggest that you contact us 04 970 3600 and we would be happy to talk it through with you.