• When did you look under the HOOD?

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    It amazes me that more people have not gotten into trouble with the use of trusts.


    We all know how great trusts are. ..but like a lot of things they need maintenance . We maintain our car , get our teeth checked , even the house for termites.


    Yet , a  vehicle we may use  to hold our most valuable assets  are often ignored.


    Let’s think about how we typically come into possession of a trust.


    We want to buy something or set up a business and our accountant explains the pros and cons and usually we decide it’s the best vehicle for us.  Ten minutes later they can have ordered one online , like a pizza  ( except without the choices) and we have ourselves a vehicle . Simple as that.  The accountant sets up all the necessary records and we get on with life. We don’t give it a second thought.


    We therefore treat the trust as a simple entity, ordered off the shelf , that we just use .


    Over coming years we discuss our business and tax planning with our accountant, and otherwise ignore the mechanics of the  trust ( and how it was constructed).


    You see , there is no obligation to review a trust deed – every 10 years or so a pro active accountant will suggest we update the deed to bring it in line with tax laws of the day.


    More likely however, is the deed will sit in the cabinet,  never to be reviewed until something happens.


    The results can be diabolical –  even worse than dying without  a will . It is possible the client may lose control over the assets his family thought would be coming their way.


    Let  me explain.


    In recent months, in   reviewing clients affairs for estate planning, I have come across the following potential  disasters:


    Ex Wife as Appointor


    Male divorced wife 30 years ago and is sure she signed forms to retire as Appointor. But can’t find them. His  farm is owned by the trust and if he dies , she will be the surviving Appointor.  Forget the will – he will lose control.  Adult kids won’t be happy.


    Ex Lawyer as Appointor


    Many years ago, smart accountants were recommending having an independent Appointor with a side agreement to give “control “ back to the client when needed.


    In this case, the trust held $6 m of property assets, including the family home and the clients had lost contact with the solicitor and lost the side agreement. They had forgotten he was the Appointor. In the event of the clients dyeing, the trust would not be accessible by the executors .


    Public Trustee as Backup


    Trust set up by the client’s father to protect assets for his newly married son. Father was Appointor, backed up by son ( my client , now 66 ) who was backed up by Public Trustee.


    Had my client died, his estate would incur significant costs in having the Public Trustee wind up the trust .


    These cases all reminded me of the enormous value accountants can provide to clients by providing an effective and comprehensive estate planning solution , because NO ONE else is in position to do this.


    When you defuse these time bombs, clients are very appreciative.