By Rob Stock From Stuff.co.Nz

Invisible, uncountable, and to some extent unaccountable, family trusts are the bedrock of many of our financial lives.

Sure they get terrible press when bankrupts and leaky home builders claim they are too skint to pay for losses they’ve caused while the family trusts they benefit from hold millions in cash and property.

These cases cast trusts in the light of obligation havens, like mini versions of Guernsey and the Cayman Islands (minus the ability to dodge tax) from which the rich and unscrupulous can laugh at poor suckers who have to pay their debts and fines.

But to be a pure hater of trusts is to ignore the value they have to a very large number of New Zealanders.

By some estimates, there are 300,000 to 500,000 trusts in the country. Trusts hold Maori assets, community assets, family homes, churches, small businesses, baches, boats, cars, and all manner of other things.

They are used because trustees have duties and obligations which evolved to safeguard assets for beneficiaries.

But I have always felt there was a serious failing in the way trustees can be held to account, especially on family trusts, a failing so profound it has led to a culture of people who refer to “their trust” as though they were talking about their dog or car.

A fix has now been mooted by the Law Commission in a report calling for a new trusts act.

Case law has established the “operating manual” for trusts, but case law is arcane and inaccessible to most people, and the commission believes writing trustee duties and obligations into legislation would make them easier to know, and more likely to be observed.

Fine, but law is only effective if there’s a consequence for breaking it.

Beneficiaries are the “police” of family trusts, but if they want to challenge or remove incompetent or dishonest trustees, they currently have to take a case to the High Court.

That’s nuts as the High Court is horribly expensive and slow.

The commission recommends that cheaper and faster district courts be allowed to hear some cases, including those calling for trustees to be removed.

Critics of the move will predict a rise in greedy beneficiaries keen on getting their hands on trust wealth taking on trustees.

My belief is that won’t happen as taking a case to the district court is still not easy.

I do wish though that the commission could have been tougher in one respect, and I should say here that politicians, most of whom use trusts to protect their personal wealth, would need to pass the laws the commission has devised.

To be accountable, actions must be visible.

The commission says beneficiaries should be told by trustees that they are beneficiaries, and should have the details of all the trustees, and the trust deed.

That’s all well and good but the commission does not think beneficiaries should have an automatic right to trust accounts, including an outline of the assets of the trust.

How can any beneficiary police trustee actions if they don’t know what they are?

GOLDEN RULES

Good trustees shouldn’t fear scrutiny.

A trust is never “your trust”.

Trustees must know their duties.

Rob Stock is the money editor for the Sunday Star-Times and works for the Fairfax business bureau.

For more on this story go to:

http://www.stuff.co.nz/business/money/9174064/New-trust-rules-likely