People regularly horrify me with the crazy way they run their family Trusts. What they don’t realise is that even the simplest Trust needs to be run properly for it to have any real legal protection. Are you running yours properly? Take our test to find out:
(1) Are you running the Trust bank account properly?
The Trust bank account (or mortgage) doesn’t belong to you. No one should take money out of it without all the Trustees formally agreeing first because Trust bank accounts aren’t for living out of. Be extra careful not to use the Trust EFTPOS card for personal things like clothes, groceries and petrol.
(2) Does the Trust have current financial statements?
Trustees are legally required to maintain proper Trust records (under section 83 of the Trustees Act) and this is backed up by numerous court cases.
(3) Do you have a Trust File?
This doesn’t have to be flash but it’s essential that you keep it for as long as the Trust lives (up to 80 years) and that it includes the following:
- Trust Deed
- Loan & bank statements
- Details of money taken out of the Trust (Distributions)
- Insurance policies
- Deeds of Acknowledgement of Debt
- Deeds of Debt reduction
- Gift certificates
- Memorandum of Wishes
- Accounts / books / financial statements
- Minutes of meetings
(4) Are the Trustees meeting at least once a year?
Trusts aren’t Dictatorships. All the Trustees must formally agree each time the Trust spends money or makes a decision about the Trust’s assets. Meetings also help prove that you’re meeting your duties as Trustee (efficient management, keeping records, loyalty, consideration etc) including protecting the assets for the beneficiaries.
(5) Is the Trust Minute Book up to date?
Every decision needs to be recorded formally and signed by all the Trustees. This even applies to the little decisions like arranging insurance and taking money out of the Trust bank account.
(6) Is your Memorandum of Wishes current?
Essentially your Memorandum of Wishes tells The Trustees exactly what you want to happen if you’re not around so it’s crucial this is kept up to date.
(7) Are you keeping the Trust assets safe?
Ideally you should review the administration and investments of the Trust annually (section 13E of the Trustees Act 1956). Signing solvency certificates for your company or personal guarantees can put the Trusts assets (like the family home) up for grabs if things go bad.
You only need to look at the Directors of the failed finance companies, still living in their mansions, to see the benefit of running your Trust properly (although client confidentiality prohibits us from telling you which ones we’ve consulted on).