Hi Guys
Part 2 of an article on trusts from a newsletter from my accountant.
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Part 2 of an article on trusts from a newsletter from my accountant.
How to get the most from your trust
(Part 2 in our Trust series)
A common belief is that assets held by a family trust are protected from the claims of people who may be able to successfully claim directly against the individuals who are beneficiaries of the trust.
Claimants include business creditors, the taxman, other state agencies, divorced spouses and other family members. Specific
provisions are contained in the Relationship Property Act, Companies Act, Family Protection Act and various other statutes.
In most cases the use of a trust is effective, as it is the individual who remains exposed, rather than the trust.
However the protection provided is only effective if the trust is administered correctly and established with the correct formalities.
Claimants and their lawyers will seek any opportunity to overturn the trust as a whole, or trustees’ decisions, if either the form
or administration is deficient.
A trust or trustees’ decision can be brushed aside if there is a sham or invalid situation. The trust may be considered a sham if
there is no valid trust settlement i.e. the assets remain in the hands of the intended settlor, rather than handed over to the trustees.
To be valid a trust requires an intention to create a trust, existence of trust property and identifiable beneficiaries. If any of these do not exist the trust is therefore not created.
If the trustees do not act independently of the settlor, the trust may not in fact exist. If the trustees’ decisions are not made in accordance with the trust deed or are made in accordance with the trust deed or are made in breach of their duty to the beneficiaries, the decisions are contrary to public policy due to illegal conduct, tax fraud, or as a fraud against creditors, and the resulting transactions may be challenged.
On an administrative level there should be:
A separate bank account
A deed of trust;
Decisions substantiated by trust resolution; (i.e. signed and dated minutes of trustees).
A proper decision making process undertaken by trustees; and
Evidence that the trustees are acting for the benefit of the beneficiaries and not for the settlor.
If any of these aspects are lacking, your trust could be open to challenge from disaffected or disgruntled parties, including
your children as beneficiaries.
(Part 2 in our Trust series)
A common belief is that assets held by a family trust are protected from the claims of people who may be able to successfully claim directly against the individuals who are beneficiaries of the trust.
Claimants include business creditors, the taxman, other state agencies, divorced spouses and other family members. Specific
provisions are contained in the Relationship Property Act, Companies Act, Family Protection Act and various other statutes.
In most cases the use of a trust is effective, as it is the individual who remains exposed, rather than the trust.
However the protection provided is only effective if the trust is administered correctly and established with the correct formalities.
Claimants and their lawyers will seek any opportunity to overturn the trust as a whole, or trustees’ decisions, if either the form
or administration is deficient.
A trust or trustees’ decision can be brushed aside if there is a sham or invalid situation. The trust may be considered a sham if
there is no valid trust settlement i.e. the assets remain in the hands of the intended settlor, rather than handed over to the trustees.
To be valid a trust requires an intention to create a trust, existence of trust property and identifiable beneficiaries. If any of these do not exist the trust is therefore not created.
If the trustees do not act independently of the settlor, the trust may not in fact exist. If the trustees’ decisions are not made in accordance with the trust deed or are made in accordance with the trust deed or are made in breach of their duty to the beneficiaries, the decisions are contrary to public policy due to illegal conduct, tax fraud, or as a fraud against creditors, and the resulting transactions may be challenged.
On an administrative level there should be:
A separate bank account
A deed of trust;
Decisions substantiated by trust resolution; (i.e. signed and dated minutes of trustees).
A proper decision making process undertaken by trustees; and
Evidence that the trustees are acting for the benefit of the beneficiaries and not for the settlor.
If any of these aspects are lacking, your trust could be open to challenge from disaffected or disgruntled parties, including
your children as beneficiaries.
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