Know your trust deed
I get to review a lot of trusts in my work and the starting point is always the trust deed.
Two things continually surprise me:
How different the terms of each trust deed are, and
How many trustees don’t know the terms of their trust deed.
There’s a perception that trust deeds are pretty much the same. I've found most trust deeds have little wrinkles that can easily trip up an unwary trustee, particularly around decision making.
Here’s a few examples I’ve come across recently:
A Trustee/beneficiary makes decisions to benefit themselves when the trust deed requires those types of decisions to be made by non-beneficiary trustees
One trustee running a trust where two trustees are required
Missing clauses in the deed
References to clauses in the trust deed that don’t exist
Onerous terms (e.g. trust deed requires financial statements to be prepared within six months of balance date, or that bank statements must be retained with the Minute Book)
Inconsistent terms used in the same deed (“date of distribution” vs “distribution date”)
Trustees have decision making roles and those decisions have to be made according to the rules. To do otherwise can invalidate a decision and increase the potential risk for a trustee.
Five good practices I’d encourage around trust deeds are:
Ensure you've got a copy of the trust deed and understand it
Read the trust deed each time you do your Annual Review
Refer to the trust deed whenever a significant decision is required
Get a legal review of older trust deeds or hard to understand terms
Get training on on how to navigate the trust deed quickly for key terms
If you’re a trustee, know the rules. You’ll find them in the trust deed.
Trust good practice.
Lindsay