Tammy McLeod (BA LLB) is a director at Davenports Harbour and a trust and asset structuring specialist. Tammy leads the Davenports Harbour Trust Team and enjoys providing clients with advice and assistance on a broad range of issues involving the structuring and establishment of asset plans, interpretation of trust deeds, the management and administration of trust funds and trust disputes. An important part of Tammy’s practice is reviewing existing asset holding structures to ensure they achieve the needs and requirements they were established to meet. She is also experienced in Property (Relationships) Act issues and advises clients on both contracting out agreements and separation. Tammy is a past president of the Auckland Woman Lawyers’ Association and is the current vice-president of the North Harbour Club.
Simon and Tracy had established their trust many years ago on the advice of their accountant. The trust owned their family home and also the shares in their building business. Their accountant had been their trustee, but when he retired, their lawyer said that they didn’t need an independent trustee. He said that if they set up a company which could be the trustee of the trust, it would make things more simple. They could be the sole shareholders and directors of the company and they wouldn’t need the involvement of anyone else.
Three years after this change in the trustee structure, their business ran into trouble. One of their big jobs had a major problem which needed to be rectified and for the first time ever, Simon and Tracy were concerned. They were thankful that they had their assets in a trust. Unfortunately they weren’t able to pay one of their larger suppliers and received a notice of demand in the post. At the same time, demand was also made on them personally as they had personally guaranteed the line of credit the company had with the supplier.
Simon and Tracy went to see a new lawyer for this issue, as they didn’t think that the lawyer they usually used was experienced enough to advise them on this issue. They went to the lawyer feeling relatively confident that as they had a trust, their assets were protected and the personal guarantee wouldn’t count for anything.
The new lawyer looked at all the trust documentation and raised some concerns. Firstly, Simon and Tracy hadn’t completed the gifting to their trust, so still had an asset in their names which could be accessed by the disgruntled supplier. Secondly, even though their assets were in trust, there was a concern by the new lawyer that as they were in effect the only trustees, it could be argued that the assets were really theirs and not the trust. They were basically treating the assets as if they were their own. Even though there was a trustee company, there was a good argument that because there was no independent director or shareholder, the trust was really just them.
Things weren’t as watertight as Simon and Tracy had first thought. An independent trustee is a vital element of a robust trust structure.
