If you have a family trust, it is very important that it is run and administered properly. This means not treating the trust’s assets as if they still belong to you, but recognising that ownership of those assets is held by the trustees for the benefit of the trust’s beneficiaries. It is all too common for people who set up a family trust to act as if nothing has actually changed and that they own the trust’s assets in all but name.
In order to avoid your trust being challenged as being a ‘sham’ by the IRD, a creditor (of your business for instance), or even by your spouse or partner, it is important that certain basic requirements be followed by the trustees. Those are:
- The trustees should hold meetings on a regular basis, particularly if the trust has active investments or holds property or assets that need monitoring or in relation to which regular decisions need to be made. With trusts that have less active investments a meeting should be held at least annually.
- Regardless of whether regular trustee meetings are held or not the trustees should hold at least one meeting annually to review the trust’s position, assets, investment strategy, the needs of beneficiaries and to ensure compliance with the trustee’s legal obligations particularly with respect to income tax and tax returns. All trustees should be involved in decisions relating to the trust and the trust’s assets.
- Accurate records should be kept of all trustee meetings and all decisions of the trustees should be recorded in writing (whether such decision was reached at a meeting or otherwise).
- All trustees should be familiar with the trust deed and their obligations under trust law and legislation generally. Professional advice should always be sought if there is any doubt.
The intention with these basic administrative requirements is to demonstrate a recognition and respect for the existence of the trust and to ensure a clear separation between the individual/s who set up the trust, and the trustees with regard to the the ownership of property and assets. A failure to follow these requirements may result in there being some confusion as to whether there is a properly established trust at all.
If you are in doubt about any of the above matters, you should contact your lawyer for clarification.