Many settlors of Trusts derive comfort from the fact that if they choose the wrong trustees then there is power in the Trust Deed to fire and hire. While the New Zealand Courts have upheld Trusts with such powers reserved to the settlor or a protector, it should be made clear that in some jurisdictions such powers can lead to the Courts regarding the Trusts as a sham. In our view choosing the right trustee from the outset is of the utmost importance and it could be argued that if a settlor actually Trusts his/her trustees then why would he insist upon powers to “fire” and “hire” being reserved to him/her.
Selecting a trustee
It is important that the settlor takes time to choose the right trustees and discusses with them fully his/her needs and requirements. Some of the points to consider are:
- Do the settlor and the trustees have similar views?
- Do the settlor and trustees understand each other?
- Would the settlor and the trustees be capable of good communication given the geographical location of the parties? Communication should include at least one annual review of the Trust’s investments, financial strategy and needs and requirements of the beneficiaries.
- How would the trustees relate to the beneficiaries once the settlor has died?
- Do the trustees really want to do the job and is he/she aware of his/her duties and extent of his/her potential liability?
Choosing the wrong trustee
Having said that the settlor and trustees should be of like mind and understand each other, it is important to understand the advisability of the trustees bringing some objectivity to the Trust. A close relation or friend should not be appointed in the belief that they will merely rubber stamp the settlor’s actions. If that were held to be the case then the Trust itself could be held to be a sham.
The cost of having to change trustees must also be considered. All assets held on behalf of the Trust must be registered or held in the names of the trustees. Consequent upon any removal or appointment of trustees there must therefore be registered or put in place changes of ownership. This can be a costly process, particularly where government fees are involved, and mortgages need to be redocumented.
Independent trustees
Independent trustees such as the settlor’s lawyer or accountant, may go some way to remove the suspicion of there being a “hands on” settlor. If the professional is a long time confidant, he/she should know the settlor’s background and understand the settlor’s needs and objectives. Such a trustee should also be qualified to ensure the Trust and all aspects relating to it are properly administered and/or maintained.
Private trustee companies
Increasingly special purpose private trustee companies are being used. These have several advantages including:
- Assurance of continuity as against having to transfer assets to new trustees where existing trusteeships change, for whatever reason, including death
- Such a company could be used as trustee for several related Family Trusts (ie all relating to one family) thereby ensuring confidentiality and consistency in approach
- In the case of trading and special purpose Trusts, the inclusion of a private company as trustee will effectively ring fence assets from other Trusts operated by a bank or Trust services provider
- It would also be possible for a colleague or friend of the settlor to be a director of the special purpose trustee company
Private trustee companies cannot be trustees in Wills and usually will not accept appointments as trustee for trading Trusts.
Conclusion
There are many private Trusts which are not administered efficiently, often largely due to the make up of the trustees. While professional independent trusteeship may cost more there is arguably a higher degree of accountability required which may of itself make the appointment of a private trustee company worthwhile. For specialist assistance and advice on Trust planning contact Tony Fortune or Katherine McCarthy.