KEY POINTS:
The majority of family trusts in New Zealand may be at risk of being successfully challenged according to a trust expert.
Integrity Trust chief executive Mark Maxwell said they encountered problems with the management of 75 per cent of trusts reviewed and 22 per cent of trusts they saw were at serious risk of a successful challenge.
People will challenge trusts when relationships ends or a business fails in order to access the assets held in the trust, said Maxwell.
"What a lot of people will try to prove is that in fact no trust exists - that I've carried on using those assets as though they were my own," he said.
Maxwell said if trustees don't carry out the duties of a trustee, such as holding meetings and involving trustees in decision making, it makes it easier to prove no trust exists and assets are considered part of the personal property.
Maxwell said a major problem within the trust industry is people are being sold trusts but aren't being educated about their role.
Trustees need to be sitting down together at least once a year to consider and record their decisions, he said.
"People are going to their lawyer or trustee company, signing the trust and because they've got that collection of 30 pieces of paper they believe they're protected because that what they think the trust is," he said.
"But the trust is more your actions and the actions of trustees afterwards. It's an ongoing commitment for the life of the trust."
Maxwell said family trusts have become an increasingly popular option for asset protection among elderly people, business owners and single people entering de facto relationships.
He estimates between 250,000 and 300,000 family trusts operate in New Zealand.
Top Five Trust Issues:
- Not all trustees are involved in decision making.
- Formal trustee meetings are not being held.
- Trustee decisions are not recorded in writing.
- Gifting is not being completed either on time or at all.
- Widespread intermingling of trust and personal and/or company finances.
- NZ HERALD STAFF
