Not all Trusts are created equal
The pitfalls with some Family Trusts
Over the years we have developed a considerable degree of expertise with Trust Law and have created a number of vital Family Trust legal documents. What has become most concerning for us is the number of non-lawyers who are providing legal advice on and drafting legal documents for Family Trusts.
There is no prohibition on anyone drafting documents. But where non-lawyers charge for such preparation and clearly do not have the legal skills to properly explain the implications of signing such documents, we believe that they are putting the general public at significant risk.
We believe that not all Family Trusts are created equal. There is no one form of wording for Family Trust Deeds, although many assume that all Trust Deeds are the same. When forming a Family Trust, we are careful to ensure that our clients are fully informed, beforehand, of the effects and implications of creating and operating such a Trust. That approach is obviously not the case with many non-lawyers who are involved in this area of the law. In fact, it has been recounted to us, on a number of occasions, that no appropriate guidance has been given – simply “you need a Trust; this is the precedent Deed; sign at the bottom”. That may be a less expensive way of doing things, but the risks can be huge.
Examples of where bad advice, or in some cases no advice at all, is given are:
- The role of the Settlor and who that should be;
- The role of the Appointor and who that should be;
- The role of the Trustees and who they should be (including the purpose of having an independent trustee);
- What should be the powers of the Trustees;
- Should there be a “Protector” and, if so, who that should be;
- Who should be beneficiaries of the Trust;
- How long should the Trust continue in existence;
- The need to update your Will;
- The desirability of having a Memorandum of Guidance to Trustees;
- The importance of regular Trustee meetings;
- The essential requirement for having and retaining Trustee Resolutions.
The above examples are only some of the myriad of issues that can and often do arise when creating and then operating a Family Trust. We are very familiar with all of the potential issues and can guide you through the process. Regretfully, many non-lawyers do not fully understand the legal implications and so simply gloss over matters. That can only lead to difficulties later on.
There is no doubt that for many, a Family Trust is a prudent legal device to protect their assets. However the structure is not ideal for every family. We emphasise the identifying of the “good reasons” for forming a Family Trust for you against the costs and paperwork you will inevitably face in creating and operating a Trust. It is a balancing act for which you need thorough legal advice.
When forming a Family Trust, the “cheapest is best” approach is not the best option as a poorly advised/ poorly created Family Trust could create major legal and financial difficulties for years to come. Even though the exercise was to protect your assets, bad advice and bad drafting could put your assets more at risk than your not doing anything in the first place.
Do not let us put you off considering the option of a Family Trust. But you need to realise that not all Family Trusts are created equal. We can guide you through the process and you can be confident that you will get the best structure legally available.