Graeme's primary area of focus is the family trust. Depending on your perspective, you could find this topic boring, confusing, complex, scary or just too much. For me, it’s exciting. I help clients to see it as interesting, simple and clear – especially in their role as trustees. As an old dog who came late to law, I greatly enjoy making things easy for the people who seek my help. You can also find me working in small business sale and purchase and guiding Incorporated Societies down the path to re-registration under the new Incorporated Societies Act. Of course, you want to know, “Why the plane?” I’ve held a private pilot’s licence for 25 years.
Where there is an existing blended family and a new trust is to be created, it is important to ensure that the Trust Deed adequately deals with the inherent challenges of a blended family.
Remember Jane and David and their children from our last newsletter? Let’s now consider the scenario where Jane and David wish to settle a trust. The following are key considerations for the terms of the Trust Deed:
Power to Appoint and Remove Trustees
Often, this is held jointly by the Settlors (Jane and David) and then by the survivor, with the ability for each of them to pass their power to someone else. Almost always, the Settlors are also trustees. If David died, Jane could appoint a replacement trustee from her side of the family (maybe one of her adult children), thus upsetting the nominal equal representation from each side of the blended family.
It is important to consider how the best interests of each side are catered for. The power of appointment provisions in the Trust Deed needs to be carefully considered and suitably drafted.
Power to Appoint and Remove Beneficiaries
Again, this power is usually held jointly by the Settlors, but it is important, in the blended family context, to ensure that the Trust Deed makes clear that the power is lost when one of the Settlors dies or loses capacity. If the Trust Deed provides for the surviving Settlor to exercise the power alone, the risk arises of that Settlor removing, as beneficiaries, members from the other side of the family.
Power to Resettle
All modern Trust Deeds give power to the trustees to resettle all or part of the trust fund onto a new trust, provided that at least one of the existing beneficiaries is a beneficiary of that new trust. Unless there are constraints in the resettlement provisions, trustees who are biased towards the family of the surviving Settlor could resettle the trust onto a new trust where the beneficiaries are only from the surviving Settlor’s side of the family.
Practicalities and Realities
In most situations of blended families and a trust, there are no problems, but, as sad as it may be, our role, as lawyers, is to consider the problems which could arise and how best to mitigate them.
For David and Jane, the lawyers’ fee to produce a bespoke Trust Deed which covers every scenario to ensure that their respective children are looked after by the Trust in the way intended, is just a drop in the bucket when considered against the cost of legal fees in a High Court action by one or more beneficiaries who feel aggrieved.
Think of it in terms of time and money spent in protection is a great investment when compared to the time and money spent in defence.
We could say the same about Wills, but that’s another chapter for another day.
Blended family? Talk to us. We can help.