PKF Francis Aickin Limited, Far North, New Zealand
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28 Sep 2017
Over the last few weeks Dale has written articles outlining the various attributes of Trusts. One of these explained the key differences between the Settlor who introduces their assets into the Trust and the trustees who control the Trust. Effectively the Trustees are controlling the money/assets gifted by the Settlor for the ultimate advantage of the beneficiaries. An important question is: how does a settlor try and ensure that the trustees run the Trust in accordance with their wishes or expectations?
Whilst the settlor is still alive they will often have the right to remove or appoint trustees if the trustees are not running the Trust as they had envisaged. The settlor can communicate with the trustees and explain what the purpose of the Trust was and what their ultimate goals were for the beneficiaries.
Obviously once a settlor dies, this is no longer possible, so how can a settlor provide guidance to the trustees?
One method is drafting a Memorandum of Wishes. This sets out how you would like the trustees to manage the Trust after your demise.
It is not a legally binding document but is similar to a Will. A Will deals with your personal property and assets, whereas the Memorandum of Wishes deals with the assets you have put into Trust for the beneficiaries.
A Memorandum of Wishes provides guidance to your Trustees as to how you would like the Trust property or income to pass to your beneficiaries.
However, it is important to remember that the Trustee of a Trust has full discretion to distribute capital and income to the beneficiaries in any way they see fit, as long as these distributions are permitted by the Trust Deed. There is no requirement for them to adhere to a Memorandum of Wishes. This is a good reason why you should firstly choose your trustees very carefully and be careful with the process allowed for appointing or removing Trustees in the Trust Deed.
The types of things you might want to include in a Memorandum of Wishes could be when you want the Trust to be distributed. Do you want the children or grandchildren to be a certain age before they can benefit? This could vary between the kids. It was certainly true that my sister was more fiscally responsible than I was. Although, thanks to my choice in career, I’d like to think that has now changed!
Should assets be held to provide income for the beneficiaries or should the capital assets be sold to enable cash sums to be paid?
You may wish to tell Trustees what you have done in the past for any of the beneficiaries, especially if you would like them to take this into account when considering how to distribute the Trust.
Are there any specific aspirations? For example, do you want to leave funds in the Trust for your grandchildren’s education or travel?
The Memorandum of Wishes is just a way you can express to your Trustees what your intentions were for the Trust. There is no legal requirement for them to adhere to it. Personally, I hope the Trustees of my family Trust feel a moral obligation to act in accordance with my wishes. Although the only real say I have is ensuring I have picked the right Trustees with the right moral compass in the first place.
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