When Mike bought the family farm in 1995 he was advised by his lawyer that it would be a good idea for the farm to be owned by a family trust. So, Mike formed the “I Love Farming Trust”. Because Mike owned the farm and was transferring it into the Trust, he was the Settlor. Mike appointed himself and brother Dan the trustees of the Trust. Mike and his children from his former marriage were the beneficiaries of the Trust. Mike set out in a Statement of Wishes that he wanted the trustees to make equal provision for his two children during his lifetime and after his death.
Once the farm was transferred into the Trust, Mike didn’t really think much about it. Once a year he visited Dan and got him to sign off the financial accounts. Dan didn’t read the accounts, he just signed where Mike asked him to. Over the following years, the Trust purchased a couple of extra grazing blocks and built a new milking shed on the family farm. Dan just signed whatever documents Mike put in front of him and never asked Mike any questions.
Mike’s son Peter had worked on the family farm since he was 15. Mike’s daughter Anna was not interested in farming at all. Mike had reassured Anna that she and Peter were going to be treated equally when he died.
By 2019 the Trust owned assets worth about 4 million. Mike found out he was terminally ill. He decided to transfer the farm and the lease blocks, being all of the Trust assets, out of the Trust to Peter. Once again, Dan signed the necessary documents without reading them or asking any questions. When Mike died, Anna had just started studying at University. She was devastated to find that Mike’s only personal assets left to her in his Will were a few household chattels, his ute and his dog.
When Anna sought advice, her lawyer told her she had a potential claim against the Trust primarily because the trustees could be in breach of trust. The lawyer pointed out that it seemed that Dan had simply rubber stamped any document put in front of him. In this case, there was also no evidence that Mike and Dan had considered relevant factors when distributing all of the Trust assets to Peter, for example, Anna’s financial needs or the purpose of the Trust, which was to provide for both children equally. There were no annual trustee meetings, no resolutions made by the trustees and no evidence that the trustees had considered all of the beneficiaries of the Trust when making any decisions.
It is crucial that trustees understand their role and perform their duties correctly. The new Trusts Act 2019 imposes a greater and clearer obligation on trustees to get it right. It is not going to be enough for a trustee to “rubber stamp” moving forward. Contact Valerie Mackay or Shelley Greer at Gallie Miles if you have any questions about the administration of your trust or your role as a trustee of a trust.