If you have a Family Trust there is a strong likelihood that you are completely wasting your time and money.
That’s right, you are possibly tipping good money down the toilet. I expect right now that a number of professional advisers are choking on their gin and tonics.
Official estimates are that approximately two thirds of Trusts are poorly administered, or not administered at all, rendering them more useless than the mammary feeding glands on a male bovine. Yes I am being deliberately provocative. But I know I’m right, so excuse the provocation.
When assets are owned in a Trust they’re no longer yours. They belong to someone else. If you think otherwise then think again – or don’t have a Trust. Quite simply, once assets are resettled into a Trust, ownership passes away from the person that transferred them (whether by gifting, sale or whatever means is used) to the Trust. The assets are now the responsibility of the Trustees who are required to act in the best interests of the beneficiaries.
Think of walking onto an aircraft to take a flight somewhere. You are no longer in control. You have to put your “trust” in the pilot. Control has been handed over to someone else. So it is with a Trust. With the handing over of control (and ownership) of the Family Trust to someone else comes responsibility of the decision makers (the Trustees) to be accountable to the beneficiaries.
This article is simply not long enough for me to cover the legal in’s and out’s of good trust administration, and plenty of others have written voluminous books on the subject, so I won’t try and over simplify here. But so often I see people who have set up a Family Trust continue to operate like they always have paying no regard to the new obligations they now have under law. And the laws are extensive (under statute and other case law).
In a very basic sense as Trustees you are looking after someone else’s money. You can imagine how the law views that. Just ask professional fund managers what they are required to do when they look after other people’s money. So what does all this mean?
Well, in a nutshell, if you are going to operate a Trust then do it properly. There are often good reasons for establishing a Trust (asset protection for beneficiaries, taxation, means testing, succession planning, intergenerational wealth transfers, health etc). But – and here’s the rub. If you spend the money establishing a Trust you are completely wasting your money if you don’t then maintain and administer it properly.
If, for example, someone decided to challenge your Trust (suing you, chasing you for a debt etc) then a judge could well bust it open making the assets of the Trust available as personal assets to creditors. You don’t want to hear the judge making comments like “The Trust was only ever operating as an alter-ego for the individuals who originally owned the assets and property. It was not administered properly. No records were kept of trust decision-making and proper account was not maintained around the finances. It was in almost all facets a sham”.
Provocative sure. But either do it properly or don’t do it at all. It could well save you some hard earned money either way.
Fight the good fight this week.