Alice and Mike

Alice and Mike’s parents had set up a trust some years ago. The trust had owned their family home and also the shares in the family business. The trustees of the trust had been Alice and Mike’s parents, together with their lawyer. When the survivor of Alice and Mike’s parents died, their accountant had been appointed as a second trustee. Alice and Mike’s parents had left a memorandum of wishes stating that they wished for the trust to continue to benefit Alice and Mike.

By that time, the family home and business had both been sold and the trust had some term deposits, a commercial property and an investment portfolio with a reputable financial advisor. The trustees paid income out to Alice and Mike, but no money was made available for capital distributions.

Alice and Mike had vastly different circumstances. Alice was a single mum to two teenage boys. She worked part time and really struggled to make ends meet. The extra income from the trust was a huge help to her, but she had a large mortgage, as well as all of the costs that came with teenage boys (sports trips, school trips, university looming). Some of the capital would be a huge help to her to be able to reduce her mortgage and generally make life easier.

Mike was in a better financial position than Alice. He was married with three small children, and had his own business as an electrician. However, he also had a large mortgage and was wanting to expand his business further.

Alice and Mike talked to the trustees about taking some of the capital out of the trust to help with their financial circumstances. However, the trustees said no. They said that they felt that the trust was there to preserve the capital for the next generation. Alice and Mike were really upset by this as they were sure that their parents would have wanted them to benefit from the trust by more than just the income, so they went to get their own legal advice.

Alice and Mike went to see a lawyer who specialised in trusts. She explained that they should approach the trustees to see if the trust could be resettled onto new trusts for Alice and Mike which would enable them to deal with their differing circumstances, but keep the protection of a trust. This was a completely reasonable approach to take and if the trustees still resisted Alice and Mike could apply to the Courts to have the trustees removed.

The lessons in this case are to make sure that your trust is constantly reviewed to make sure it will work well for the beneficiaries and also to ensure that you do have the right trustees in place.

Tammy McLeod 099154386

Issue 89 July 2018