Establishing a trust – unintended consequences when it goes wrong!

20 March 2018 Topics: Estate planning, Tax and revenue, Trusts

Establishing a trust is simple, but often not done properly.

Unfortunately, it is common to see trust deeds that have not been properly signed or that the settlement moneys or cheques are not banked by the trust. Although these look like minor deficiencies, the failure to properly settle a trust can have unintended consequences, especially for a client’s estate planning.

In the recent case of Re Lauer; Corby v Lyttleton [2017] VSC 728, the Court held that a trust was not properly established for the following reasons:

  1. The settlor did not execute the deed.
  2. There was no evidence the settled sum of $500 was ever given by the settlor to the trustee.
  3. The beneficiaries were not sufficiently defined in the trust deed.

This was the case even though there was a person claiming to be the trustee and a bank account with money in it had been opened in the name of the trust.

As the discretionary trust had not been properly established, the gift in the deceased’s Will to the trust failed, and the gift passed under the rules of intestacy to the deceased’s sole surviving nephew, contrary to the deceased’s intentions.

Tips to ensure a trust is properly established

  1. Trust deed: Use a well drafted and comprehensive trust deed that contains all the necessary trust formalities and is easy to understand.
  2. Signing: Make sure that the settlor and trustee properly sign the trust deed and it is properly witnessed. Cooper Grace Ward can settle trusts we establish.
  3. Settlement sum: Ensure the settlor provides the settlement sum (usually $10) and deposit this into the trust’s bank account as soon as it is established (even if you do not need a bank account for another reason). Cooper Grace Ward provide settlement cheques for the trusts we settle.

Our affiliate, CGW Structures, offers a range of fixed price services for properly establishing trusts, companies and SMSFs.

If you would like to discuss this case or how we can assist you and your clients further, please contact a member of our team.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.