Talking trusts: section 13D contrary intention.

Mick had been trustee of his friend Rob’s trust for a number of years. Rob’s wife had died many years before and Mick and Rob were the only trustees of the trust. The trust owned Rob’s family home and also a minority shareholding in Rob’s eldest son’s company. Unfortunately Rob didn’t get on with his two younger children.

Sadly the relationship between Rob and his two younger children, Nick and Jane, deteriorated even further when Rob got into a relationship with someone else. They started asking questions about the trust and what it owned. They wanted to know the value of the trust property, whether there was any debt on it and also how much the trust had invested in their older brother’s business. Rob and Mick went to Rob’s lawyer to get some advice and the lawyer advised them that they were under an obligation to account to the beneficiaries and had to provide the information. They also had to show the most recent accounts for the trust.

Diversifying assets of a trust

 

After providing the requested information, Mick thought nothing more of it, until one day he received a letter from Nick and Jane’s lawyer questioning his integrity as a trustee. The letter said that Mick as a trustee was personally responsible for not diversifying the assets of the trust and as a prudent trustee he should not just sit back while the trust owned a family home which wasn’t producing any income to distribute to the beneficiaries and also shares in their brother’s business, which the trust had paid a lot of money for but also weren’t producing any income.

No section 1D contrary intention

 

This time Mick decided to go and see his own lawyer. After looking at the trust deed, his lawyer told Mick that he could have some issues. The trust deed didn’t contain what Mick’s lawyer called a “section 13D contrary intention”. He explained that in lay man’s terms, under the Trustee Act the trustees of the trust had an obligation to diversify the assets of the trust. Clearly the trustees hadn’t done that and so had left themselves wide open to attack by the beneficiaries. However, if the trust deed had had a section 13D contrary intention in it, then there was no obligation to diversify the trust’s assets to the same extent. If only Mick had taken advice on the form of the trust deed before agreeing to be trustee!

If you are a trustee and wish to review the trust deed and your obligations, speak to Tammy McLeod, partner and trust law specialist.

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