Complex Family Dynamics.
You may feel your trust is well structured and that you are providing for your family when you are gone, however it’s important to be flexible and thoughtful when there are more than one beneficiary involved.
The following scenario shows us the complexities and emotional challenges that can happen when there has been no consideration for the individual needs of all beneficiaries.
Sarah’s parents had had a trust for as long as she could remember. It owned their family home, holiday house and various commercial property and managed fund investments. Sarah’s parents had worked hard. Her Mum had died a couple of years ago and her Dad, earlier this year. While Sarah had a rough idea of what the assets were, she didn’t know what the total value of the trust was or what assets she would be receiving. She had been asked by her parents’ lawyer to go to a meeting to talk about the trust.
Sarah wasn’t sure what to expect at the meeting. She knew that a “reading of the will” was something that really only happened on TV, but she was looking forward to finding out how things would progress going forward. Sarah’s two older brothers were also attending the meeting. The three children mostly got on, but there was sometimes friction between the three, that in Sarah’s view, was mostly caused by the strong opinions of her eldest brother, Matt’s, wife. Sarah’s parents really had no idea that their children’s relationship could sometimes be quite strained.
At the meeting with the lawyer, Sarah was shocked to discover that Matt and her other brother, John, were appointed as trustees of the trust together with her parents’ accountant.
Sarah didn’t feature at all. All three children were to receive an income from the trust assets and the family bach was to be retained in the trust for the use of all three children and their families.
Sarah was so upset. She and her husband had a large mortgage and she was hoping for some funds to be able to relieve that pressure. Also, they hardly ever went to the family bach. They had gone most Christmases and Easter breaks when her parents were alive, but that was only to visit her parents.
Sarah approached her brothers to try and explain her circumstances and try to work through a result which would be more helpful to her current financial position. However, Matt in particular was adamant that their parents’ wishes would be abided by and that there would be no additional support for Sarah beyond the income that she would receive from the trust assets.
Sarah decided to go and get her own legal advice. Her lawyer advised her that she was able to ask for extensive financial information relating to the trust and that while her parents’ wishes were legally persuasive, they were not legally binding, and the trustees had an over riding obligation to consider the needs of the beneficiaries of the trust. After many months of communication between Sarah’s lawyer and her brother’s lawyers, and Sarah’s lawyer threatening to make an application to remove both of her brothers as trustees, the family agreed to go to mediation.
This situation is sadly typical of families of who set up structures, but don’t consider what those structures might look like in the future.
It is extremely important not to have a “set and forget” approach to asset planning. Asset values increase all the time and have done so in particular over the last few years with property prices increasing exponentially. People also need to consider the needs of all their children. Unless there are vast sums of money, it is not always a good idea to try and retain assets in the same trust beyond your death. Children have varying needs. One might use the family bach every second weekend. Another might have no interest at all or may not even be able to afford the petrol to get there. Some children may have large debt that they need to pay down whereas others might be happier to have some extra income coming in.
Ultimately, Sarah and her brothers reached a compromise, but the process took an emotional toll on everyone involved. It’s important to put thought into who will be managing your affairs if you die (or if you lose capacity). In this case, there may have been good reasons why Sarah was not included, but families should strive for transparency and communication around the trust arrangements, so they remain fair and relevant. That way they can help mitigate potential conflicts and ensure that assets are managed in a way that respects any wishes, while addressing the evolving needs of all beneficiaries.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.
