TRUSTS CAN BE COMPLEX AND GIVE RISE TO MISUNDERSTANDINGS AND DISPUTES
While trusts are commonly encountered and readily set up to manage financial affairs, they can be quite complex and give rise to misunderstandings and disputes. Understanding your obligations and entitlements arising from a trust is a matter that can be clarified through legal advice.
What is a Trust?
A trust is a legal structure entered into as a means of controlling the distribution of property. A trust is a form of property ownership set up to benefit others. A relationship is created whereby one or more persons or companies hold an individual’s property on condition of certain duties as to its use and protection for the benefit of others. Trusts are part of the law of equity.
The main roles in a trust are between the trustee and the beneficiaries (there may be other roles depending on the trust). The trustee must act in the interests of the beneficiaries in preserving and protecting the assets of the trusts. The trustee has what is known as a “fiduciary duty” to the beneficiaries.
What powers does a trustee have?
The powers given to a trustee have several sources:
1. The trust deed;
2. Common law principles in relation to trusts and fiduciary duties; and
3. Applicable legislation.
Further, trusts come under a variety of types, some of which overlap, including discretionary, non-discretionary, family, fixed, unit, testamentary, charitable, bare, hybrid, superannuation, constructive and resulting trusts.
Why should I set up a Trust?
The reasons for setting up a trust can usually be traced to one or more of the following motives:
1. Placing assets out of direct control of beneficiaries who may make poor decisions;
2. Controlling assets and income;
3. Sharing income, as for example between family members;
4. Minimising taxation liabilities;
5. Keeping assets secure from third parties, such as creditors; and/or
6. Avoiding conflict of interest
What disputes can arise from a Trust?
A lawyer is able to advise on trusts before or after a dispute has arisen. This can be to do with matters such as:
1. The effect of insolvency or bankruptcy;
2. The intersection between trust disputes and other areas of law such as family law, commercial law, and wills and estates;
3. Reviewing trusts;
4. Responding to allegations as to breach of trust;
5. Family disputes;
6. Asset tracing and recovery;
7. Charity formation;
8. Removal and appointment of trustees;
9. Suitability of trust structure;
10. Variation of trusts;
11. Advising as to the terms of a trust deed;
12. Liaising with external advisors such as accountants and financial planners;
13. Providing advice as to the powers, liabilities and fiduciary duties of trustees;
14. Advising as to entering transactions with the trustee;
15. Advising as to legal proceedings.
Given the complexity of trusts, it is understandable that they are a ready ground for disputes to arise. These can be over minor issues or significant issues with considerable sums of money involved.
Some examples of where trust disputes may arise are:
1. Disagreements as to asset ownership and distributions;
2. Disputes regarding access to income, frequency of entitlements and division of income;
3. Appointment, removal and remuneration of trustees (or directors of a trustee company);
4. Whether a trust has been created by the operation of law, despite no express agreement, as in the case of resulting or constructive trusts;
5. Trustees do not distribute benefits to the right people or entities or in the right amounts;
6. Trustees act negligently, recklessly or incompetently, as for example applying the majority of trust funds to risky investments, or applying trust assets to personal use;
7. A beneficiary and trustee disagree as to how a trust deed should be interpreted, for instance in such matters as whether a trustee is acting beyond its powers or not fulfilling its duties; and/or
8. Other conflicts among beneficiaries, among trustees, and between trustees and beneficiaries or third parties.
If you are subject to a trust dispute or are not sure about your rights under a trust structure or fiduciary relationship, please do not hesitate to contact our office to discuss your entitlements and prospects.