Trustee’s role not terribly taxing

Our first five instalments described the history and purpose of trusts, the roles of the various people involved, the asset-protection characteristics of a family trust, the role of a trust for the self-employed and the importance of signing a new will when forming a trust.

Here, we look at some of a trustee's key administrative responsibilities.

People considering forming a family trust commonly ask two questions:

* Does a family trust need to be administered by a lawyer and/or accountant?

* Aren't there significant ongoing administration costs?

The answer to both questions is no.

A family trust that has been thoughtfully documented, with templates for ongoing actions and instructions for administration, will generally not require the services of an accountant or lawyer. If the trustees are competent and diligent, a family trust can be administered year-after-year at no cost.

As with a business, if there are major transactions such as property sale and purchases taking place, or if the trust has significant income, an accountant or lawyer may be needed. However, even then, the amount of input required should be minimal if the trustees have correctly documented the transactions themselves.

Historically, accountants and lawyers have done a fine job of lining their own pockets by convincing people that they should be intimately involved with family trust administration.

This is not only generally untrue, it has also added to the view that family trusts are only for the rich. As thousands of New Zealand families have discovered, with the right guidance, most people are able to administer their own trust.

A family trust is similar to a company when it comes to record-keeping, with the trustees having many of the same responsibilities as company directors.

Let's look at some of the key tasks:

The trustees are required to write minutes concerning their decisions and keep these and other trust documents safe for future reference.

The trustees must carefully maintain the trust bank account(s) and copies of the bank statements should be kept with the trust documents. Details of all payments made by the trust along with all income received by the trust must be documented.

Details of the trust assets and debts must be recorded.

Most importantly, the trustees must at all times act within the rules laid down by the trust deed, which commonly includes instructions about the way in which beneficiaries are to be treated and how the trustees can exercise their powers when making trust decisions.

There are annual IRD returns to complete if the family trust is registered with the Inland Revenue Department, along with annual IRD Gifting Forms if the trust owes a debt to the settlors. However, there are usually no ST, FBT or PAYE returns to worry about.

And that's about all there is to it, which is great news for those considering protecting family assets by this means.

* Glenn Smith is the Homebizbuzz trust and company formations expert.