"Ten dollar" trusts - what happens to the $10?
Most discretionary trusts are set up with a nominal settled sum of $10. This nominal settled sum is paid by the settlor/s to ensure that the trust, from inception, has property subject to the trusts of the trust.
Commonly, the $10 has been paid into the solicitor’s trust account. But, once it has been paid, what happens next? Too often the $10 sits in the solicitor’s trust account and creates ongoing administration issues. The law firm, pursuant to Regulation12(7) of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008, must prepare a client statement to be sent to the trustees each year. This often is not done, so creates additional work for the New Zealand Law Society inspectors auditing the firm’s trust account.
If other more substantial assets are transferred or made subject to the trust at its inception, there is no need to pay the $10 into the solicitor’s trust account, as long as the other documentation that is signed at that time refers to the $10 being included as part of that other transfer.
However, if no other assets are transferred to the trust on the day the trust deed is signed, the $10 should be paid to the solicitor’s trust account. The $10 should be held under a separate trust administration file in the name of the trust itself, as distinct from the file established under the name/s of the settlor/s. If it is anticipated that within the next 12 months assets will be settled on the trust the $10 will not create the problem referred to above. Once further assets are received, the trustees can resolve to use the $10 to either:
- pay part of the solicitor's fee for the transaction; or
- distribute to a beneficiary of the trust.
If it is anticipated that it will be some time before other assets will be transferred to the trust the trustees can resolve to lend the $10 to one of the beneficiaries. The $10 loan is an asset of the trust, so the trust continues to have property subject to the trusts of the trust. Once further assets are settled this loan should be repaid and either distributed to a beneficiary or used to pay trust expenses.
Alison Gilbert is a partner with Brookfields Lawyers and leads the firm’s Trust and Management Services team.
Last updated on the 10th July 2019