with Don Fraser
Fraser Farm Finance
What are your responsibilities and what do you need to do? I’ve seen people appointed as trustees to family trusts and wills and have witnessed them making some terrible decisions. This has prompted me to write this article.
Some time ago two trustees were entrusted to look after a large farm that had not been well maintained. They spent every cent that was in the coffers to tidy up the farm and then the trustees thought they would lease it, new fences, races, buildings and all! All the money was spent, the farm looked great, but…
The trustees then put their own stock on the farm and tried to remain as trustees. There is a huge breach of integrity here and they’d completely forgotten the original instruction and intent. Trusts are a fantastic vehicle to carry land from one generation to the next. However, you are dependent on the trustees, who are to act on your behalf when you have vacated this earth, to make the right decisions and to look after the asset for the beneficiaries of the trust.
Family members should not be trustees in my opinion. Upon your demise they have a huge job and will be subject to pressures from everywhere. I know of a case where an ex-wife of a settlor of a trust tried to influence the settlor’s own brother, who was a trustee, away from buying more real estate following a marriage break-up.
Why? Because she, being the estranged wife, did not want her ex-partner to progress forward. Needless to say, the brother had to be removed as a trustee. He was no longer objective. He was supposed to be acting for the trust but the settlor’s ex-wife was able to influence him.
Some people’s greed seems to be more prevalent these days. Family members will see an opportunity to prosper and will chase that opportunity with little regard for other family members’ wishes or what is fair. A trustee has to be mentally strong to stand up for what is right and to remain fair and objective.
Trusts usually have two trustees. Your solicitor will ask you to nominate two trustees. Do not make this decision in haste. Take time and go away and think about the decision. Talk to the people who you are considering as trustees. Make sure they have you and your family’s best interests in mind. Do they understand your family dynamics? Solicitors do not generally make good trustees. They tend to look at everything from a legal perspective. They are included to be pedantic and litigious rather than objective. Accountants often make better trustees. They may have a more realistic understanding of the issues and will look at these from an accounting aspect.
Because of the liability of a trustee regarding unpaid GST and tax, accountants are often more aware of issues that may arise. They usually have a better understanding of day-to day-activities of businesses and can normally be more familiar with the family.
Some professional trustees have a trustee company that they operate from. The trustee company offers some protection should a claim be made against the trustees and/or the trust. Independent trustees, who have a wide experience in all aspects of farming and business are generally more ideal. They are likely to charge for time in attendance, but you expect to pay any professional person for advice anyway.
The key points in selection of a trustee are: objectivity; independence; have a good understanding of people, law and accounting issues; experienced and not aged; live within easy commuting distance if possible; are not beneficiaries of the trust.
So you’re dependant on their decision-making ability when you have vacated this planet. Selection of a suitable trustee for your trust is a very important decision and not to be made lightly. It is essential you get this selection right as they represent you upon your demise.
These are the opinions of Don Fraser of Fraser Farm Finance. Any decisions made should not be based on this article alone and appropriate professional assistance should be sought.
Don Fraser is principal of Fraser Farm Finance and a consultant to the farming industry. Contact him on 021 777 675.