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The Family Trust and the ‘Independent Trustee’

The Family Trust and the ‘Independent Trustee’

Written by:
Peter Fuscic

A trust exists to hold assets for a certain purpose.  For an ‘ordinary’ family trust, commonly conceptualised as a ‘mum and dad’ trust, the ‘mum and dad’ settlors ordinarily transfer their main home to trustees to hold that property for the benefit of their immediate family group.  In this scenario it is common for ‘mum and dad’ to be appointed as trustees.  They are additionally named as discretionary beneficiaries to ensure they may benefit from the trust assets throughout their lifetimes as well.  

There is no requirement at law for an independent trustee to be included or act for a trust; however, it is common practice for an independent person or entity to be appointed to act as a trustee alongside the person or persons who have set the trust up.  Independent means that the appointed person or entity is not a named discretionary beneficiary of the trust and therefore cannot benefit from the trust assets.

A family trust is commonly structured as follows:

Some key benefits of an independent trustee include:

1. Legitimacy: Where the same person set up a trust, acts as the sole trustee and is named as a discretionary beneficiary, the argument may exist that the assets have never left the control of that person and that the trust is a ‘sham’ at law.  Most modern trust deeds require trustee decisions to be unanimous, meaning that the trust assets may not be dealt with unless there is express authorisation from the independent trustees. This clearly demarcates the actions of the trustees.

2. Impartiality: Trustees have an obligation to act impartially and in the interests of all beneficiaries.  This is arguably more difficult to achieve where the sole trustees are discretionary beneficiaries, and therefore have a vested interest in the outcome of decisions made.  Where unanimity of trustee decisions is required, the presence of an independent trustee may lend a robust and objective perspective to otherwise contentious decisions (for example where a decision benefits some discretionary beneficiaries to the exclusion of others).

3. Record Keeping: Trustees are obliged to keep trust records of all decisions made and transactions entered into.  Where a professional independent trustee is selected appropriately and appointed, they may take on the role of record keeping to ensure all trustee resolutions, deeds and gifting records are drafted and put in safekeeping appropriately.

Independent trustees may choose to be appointed in their personal capacity however it needs to be appreciated that comes with the inevitable possibility of personal liability or risk. It is increasingly common practice for an independent person to be appointed as the director of a bespoke ‘corporate trustee’ instead. This means that a company is incorporated to act as a trustee, with the independent person or persons appointed in director and shareholder roles.  In this case the director(s) of the company is the signatory for that person.

Most of the operative provisions of the new trust law, the Trusts Act 2019, will be coming into effect on 30 January 2021, which clarify and confirm the duties of trustees. The change in law is likely to result in greater oversight of the administration and management of trusts, and beneficiaries taking enforcement action where this is not done correctly. More than ever it will be important that trustees are discharging their duties as required by law, and independent trustees need to be selected with this in mind.

McVeagh Fleming is able to provide an independent trustee service for you.  Our preferred process is to appoint a Partner to act in this role via a trustee company which is set up specifically for your Trust.  Appointing a company in this role means that the Director can be replaced further down the line if necessary (eg if the relevant Partner retires) without the need for a formal process to retire and appoint a new independent trustee.  

Please contact us to discuss how McVeagh Fleming can assist you further with your trust-related needs.

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© McVeagh Fleming 2020

This article is published for general information purposes only.  Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.  If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.

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