Recently you may have heard about the Clayton v Clayton decision in New Zealand's Supreme Court.  Actually there were two cases published simultaneously in March 2016, and lots of lawyers are (rightfully) spending a lot of time pouring over the implications of these.

We have decided, very sensibly, not to comment on the judgements themselves, but we think a few important points were made in the cases that are worth repeating here.

  1. These are authority, yet again, to confirm that a discretionary beneficiary has no greater right than the 'right to be considered' for a distribution.
  2. Final beneficiaries only have contingent rights to the trust capital existing at vesting day, and not before.
  3. If a trust deed gives permission for something (e.g. the trustee to favour themselves over others) then they may do so.
  4. The absence of adequate financial records, tracing of separate property, complex mingling of property, and trustee resolutions makes it difficult for everyone to prove their version of events.
  5. When there are millions of dollars at stake, skimping on the basics can be a very expensive exercise later in life. 

Actually, it doesn't matter the dollar amount.  If the argument is over the most important financial assets of a family the amount is material regardless of the number of zero's.

When the new Trustee Act becomes law some of these failings should be addressed.  Our concern of course is that they should be addressed now.  And we have no confidence in these issues being addressed by trustees under the new Act anyway, which will expose trustees to greater risk for breaching their duties.

As a minimum trustees should right now be doing the following:

  • holding an annual trustees meeting
  • preparing basic financial reporting of assets, gifts, loans, debts, income, expenditure, and distributions (in cash or in kind)
  • reviewing the trustees investment policy (if any)
  • identifying new beneficiaries
  • considering beneficiaries needs and possible distributions
  • preparing trustees resolutions confirming the above.

MyFamilyTrust has been established to assist professional trustees and family trustees to understand and comply with their obligations in a simple and easy to understand way.  Want to know more?  Check out their website

Need advice on what you as a trustee should be doing, contact us

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