Trust deeds – Know the rules

Published March 17, 2016

I review a lot of trusts in my work.  The starting point for me is always the trust deed.

Two things continually surprise me:

  1. First up, just how different the terms of each trust deed are, and
  2. Secondly, just how many trustees don’t know the terms of their trust deed.

There’s a perception in some quarters that trust deeds are pretty much the same.  I’ve found most trust deeds have little fish hooks or wrinkles that can easily trip up a trustee, particularly around decision making.

Here’s a few examples I’ve come across recently:

  • Trustee/beneficiary’s who are making decisions to benefit themselves when the trust deed requires those decisions to be made only by non-beneficiary trustees
  • One trustee running the trust where a minimum of two trustees were required
  • Missing clauses and references to clauses in the trust deed that don’t exist
  • Onerous terms (e.g. a trust deed requiring that financial statements must be prepared within six months of balance date or that bank statements must be retained with the Minute Book)

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:

  1. Ensure you’ve got a copy of the trust deed and understand it
  2. Read the trust deed each time you do your Annual Review
  3. Refer to the trust deed whenever a significant decision is required
  4. Get a legal review of older trust deeds or hard to understand terms
  5. Get trained up on how to navigating the trust deed quickly for key terms

If you’re a trustee, it’s up to you to know the rules.  You’ll find them in the trust deed.

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