Trusts: Part II – Determining Control

As discussed in our previous blog, Trusts: Part I, control of the trust is key in determining the impact for family law matters. In this blog, we discuss several considerations for determining control of a trust.

Company organization structures can be complex. An additional layer of complexity is added when trusts are part of that structure. When determining control of a corporation, we consider the organizational structure, and generally can determine control based on the number of shares and attributes of the shares held. Determining control of a trust is different, as there are no shareholders with defined shareholdings. Instead, we look at several factors which will form part of a legal argument regarding control of the trust.

1. Original intent of the trust;
2. Degree of control over assets of the trust; and
3. Past activity of the trust.

Original Intent of the Trust

We want to consider what the settlor’s original intent was for establishing the trust. Was the trust established to pass on wealth to future generations? Was it established to split income with a spouse? Was it established to protect assets?

It may be difficult to determine what the original intention was of the trust. Depending on when the trust was settled, there may not be documentation available to indicate the intent of the trust. The accountant’s planning letter(s), to the client, and instruction letter(s), to legal counsel, when the trust was established are useful documents to get an idea of the original intent of the trust.

Control Over the Assets of the Trust

As discussed in our previous blog, the trustees are appointed by the settlor to manage the assets of the trust. A trustee may have control over the assets and income in the trust, but there are other factors to also consider. Are there other trustees? What is the relationship among the trustees? Who has the power to remove or appoint new trustees? What is the relationship with the beneficiaries? To answer many of these questions, the trust deed or indenture is a helpful document to review.

Past Activity of the Trust

Finally, a review of the past activity with the trust may provide an indication of how the trust has been historically managed. Has the trust historically paid out its income or is it reinvesting? Has one trustee historically controlled distribution? Has the trust distributed income evenly across the beneficiaries, or to specific beneficiaries? Examining the trust tax returns and financial statements are useful for observing how income from the trust has historically been distributed.

Other important factors in dealing with trusts, such as the role of beneficiaries will be covered in part 3 of this series.

Dealing with Family Trusts may add an extra layer of complexity to family law matters. The experts at Davis Martindale can help you, give us a call today for a personalized discussion.