What can go wrong with a trust?
There are numerous articles on what can go wrong with a trust but, because they are mostly written by copy and paste “experts” they tend to be over theoretical and mostly miss the most obvious mistakes. In fact, I have not read one article that deals with the fundamental errors that are so common.
Here’s what I see in practically every trust deed that I am asked to read –
- The initial donation is R100. That means that the trustees must open a bank account (which they usually don’t do) and deposit the R100 (which they almost never do). why is that a disaster? Because it invalidates the trust from the word go. Without evidence of the R100, the trust was never actually formed.
- The beneficiaries are the founder, spouse and kids. Another disaster. If they all get wiped out in an accident, the trust has no beneficiaries and the High Court has to decide what happens to the trust assets, sometimes awarding them to the State.
- The trustees are given the power to make loans to anybody, with or without interest. If they did this, then regardless of what the trust deed says, they may not have acted in the interests of beneficiaries and can be held personally liable for the consequences.
- The trustees are required to meet at least once a year. The problem with this is that they don’t, and because they ignore this provision of the trust deed, they are treating the trust as a sham and laying it open to attack by the founder’s creditors.
These are by far the most common, but there are numerous other errors that creep into copy and paste trusts, and I deal with many of them in my book, “16 Steps to Wealth“