Does your professional trustee know what to do if you aren’t around?

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Often, settlors of a family trust think that in the event of their deaths, their wills will cover assets held by the trust such as a family home. However, this is not the case. Wills can only deal with personal possessions and assets.  Treatment of a family home held by a trust cannot be covered by a Will. The Will can however appoint a trustee to administer the trust.

Most family trusts in New Zealand have settlors acting as trustees. In the event of their death, it is important that trusts have a trustee to administer the trust according to the settlors’s wishes. It is crucial the trustee understands the wishes of the settlors in regards to administering the trust and treatment of the beneficiaries.

A Memorandum of Wishes (sometimes referred to as a ‘Letter of Wishes’) gives you the ability to guide your appointed Trustees on what the purpose and desired outcome for your Trust assets is.

While it may not necessarily be binding on the surviving Trustees, they will usually follow it.  Your wishes may be documented in absolute terms or in relative terms, it may take into account all of the distributions that have been made to date, or take into account only part of them.

 

A possible format could be:

Introduction: Why you set up the Trust.

Specific Beneficiaries:  Who you want to benefit and when.  Is a charity to be included?

Context:  Consider the current situation of your beneficiaries, i.e.preschoolers, married with children, financially aware or needing support, etc.

What to do: Specify how you want the Trust to work going forward.

 

Further points to consider:

 

  • Should distributions be absolute?  E.g. $200,000 each.
  • Should distributions be in relative terms?  E.g. each child is to receive sufficient upon the death of my spouse and myself to be able to buy a medium priced house in Hamilton.
  • Don’t forget that when the Trustees read your Memorandum of Wishes it will be a sad day as you will have passed away.  Choose these people with care, as it is them who will be taking into account your views and wishes later on.
  • Give some thought to the age of the Trustees, and/or if you are considering appointing a family member, could it cause a dispute in the family.  Also consider whether they have a good sense of business and share your family values.

When taking on a professional trusteeship role for our clients at GECA, we ensure a Memorandum of Wishes is completed at the initial Trustees Meeting.  As part of this we cover decisions such as:

 

  1. Do you want the Trust assets dispersed immediately on your death or preserved for a purpose?
    1. Should a home be sold or kept for all?
    2. If dispersed is it to be done on a strictly even basis?
  1. Factors to consider in assessing what to leave your children:
    1. What are their ages and stages in life?
    2. What is their matrimonial position?
    3. What have you given them to date?
    4. Does one of your children have special needs that should be considered?
    5. What is the financial maturity of each child?
    6. Consider the amount of wealth you have to pass on
  1. Are there specific purposes that the funds should be used for?
    1. Education aspirations
    2. Travel
    3. Repay student loans

If you need help drafting a Memorandum of Wishes or would like the peace of mind that comes with knowing you have a trust that will protect your assets and look after your beneficiaries when you aren’t around, then we can help.

Call Giles now for a no obligation discussion on the set up and administration of your trust on 0800 758 766.