Posted by Kathryn Dalglish on behalf of Good Returns on 2nd Aug 2007

This handy little book should be essential reading for everyone who has a trust, is a trustee, or is thinking about setting up a trust.

Trusts have long been a favoured method to protect your personal or family wealth from claimants and predators. Ex-partners, litigious clients, present and future Government legislation (such as Rest Home charges or death duties) are examples of claimants on personal wealth. These claimants can strip families or individuals of their wealth, if it is not held in a suitable structure.

Trusts are also used to hold family assets for future generations, protect inheritances, provide education for future generations, and also to minimise the amount of tax payable.

For trusts to bring the above benefits, the trust must be properly set up after careful thought about the particular circumstances of the individual and family. Equally, and equally importantly, the Trust needs to be well managed. A trust that has not followed all the required processes can be challenged by the claimant, and could offer no protection at all, if the Trust Deed or the management of the trust are found to be lacking.

This rather thought-provoking book sets out clearly all the main pitfalls of depending on a Trust that has not been properly set up or well managed.

It would seem that having an independent professional trustee would solve these problems. While having an independent trustee adds integrity to the trust, this does not necessarily protect the trust from claimants.

Mark Maxwell has written this book to highlight the lack of knowledge by most trustees. He says: "The three main areas of education that need immediate attention are trustees' duties, trust management requirements and the risks trustees face." This last point is one which many trustees overlook, and it could have serious repercussions for people who undertake to be trustees without having the necessary knowledge or suitable protection from personal risk (personal indemnity).

The situation where people have set up a trust primarily to protect the family home from Rest Home charges, and have merely completed the gifting programme, is one that could be challenged by WINZ. In most such instances, the trustees have been entirely passive, taking no part in the management and running of the trust. Maxwell expects that these “silent” or passive trustees will often have their trusts challenged in the coming years.

When a trust is successfully challenged, or 'busted' the property returns to the people who originally owned the assets, and therefore the assets are able to be claimed by the challenger. As well as losing the original assets, the trustee may also face a claim by trust beneficiaries for negligence.

Included in this book are checklists of essential trust management duties. One duty that is often overlooked, even by professional trustees, is that distributions to beneficiaries must be completed by 30 September each year, whereas the gifting programme is actioned annually.

The "Trust Bust Test" is a checklist developed by Integrity Trust Limited as a simple indicator for trustees to assess whether they may require further advice to manage their trusts properly.

Altogether, this book is a must-read for anyone who has, or is planning to have, a programme to acquire and manage wealth for their family. It is also essential reading for trustees, who are often not providing ongoing documented management of their trust, leaving it open to attack.