DO YOU KNOW WHAT THE TRUST DEED SAYS?
All trust deeds are not the same.
Granted, they may LOOK the same. They look like legal documents.
But do they behave the way they’re supposed to when “it” hits the fan? Do you know how decisions are made? Who can hire and fire trustees? Who the beneficiaries are? I hope so because we don’t want any “unintended consequences” do we.
Case in point:
Mum and Dad had a farm. Their son also had farm, and he helped his parents run their farm too.
Mum, Dad, and Son decided to form a Family Trust to hold all the machinery and equipment used in the farming operation for both farms. They were all trustees and beneficiaries of the Trust.
Crucially, the son was made the ‘Appointor”, which gave him the power to add trustees and to remove beneficiaries of the Trust. Presumably there was some reason for this at the time.
Sadly, there was a falling out between the son and his parents. Son used his powers as appointor to remove Mum and Dad as beneficiaries of the Trust and to add a further two trustees. Ouch!
Mum and Dad applied to the Court to be reappointed as beneficiaries, to have the two new trustees removed, and the Public Trust appointed in their place. The basis for Mum and Dad’s claim was that the son had acted in bad faith in his role as Appointor.
The High Court held that the Trust Deed was not appropriate, the advice provided by the parties’ accountant who formed the Trust was inadequate, and that the parents had never considered what would happen if they fell out with their son.
The Court found that Son has acted in bad faith in removing Mum and Dad, but the decision to appoint two new trustees (who Mum and Dad felt were just following the son’s orders) was reasonable. The new trustees were professional trustees and were at the heart of any hope of resolving the ongoing problems.
So, what does this story tell us?
Get proper advice, and really “understand” the Trust.
Check for any conflicts – would there be an argument here for Mum and Dad getting their own independent advice, separate from the advice Son was getting? I think so.
The case above is quite simple. Imagine the more complicated (but arguably more typical) scenario where Son may also be in a relationship, possibly not his first one, and possibly has children from his current and former relationships.
Scott Young at Queenstown Law is your man: scott@mawhinney.co.nz or phone 03-4500000. [/vc_column_text][/vc_column][/vc_row]
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