A Trustee's Dilemma

At Covisory we act as independent trustees for many trusts. Being outside of the family allows us to bring an unbiased and clear appreciation of both the issues and options facing trustees in the modern world. In addition, often we have already addressed the issue many times before, so that history allows us to crystalise the issues and help our client families make informed decisions.

In what will become an ongoing column in Connect we thought we would share some of the issues we face as trustees so that if they do apply to you and your family you will benefit from our past experiences. In this issue we will share two insights with you.


Trust investments and market downturns

At the outset, we clearly must state that we do not offer investment advice in our role as a trustee. What we do is to make sure that the correct process of selecting investments is followed.

So what do you do as a trustee when the share market suddenly falls 10-20% like it has this year? The short answer is that typically you must simply hold the course and wait for the markets to rebound. Investing in these types of products and types is supposed to require long-term investment horizons. If you have a long-term horizon of say greater than 10 years, then some bumps along the way should not matter. If you need the funds back in the next few years for a particular purpose or for example to fund retirement, if you are of that age then you need to give this thought.

If you sell out and wait you risk losing the eventual rebound in value. Instead, it may be appropriate to review or reconsider the overall level of risk/volatility that the portfolio is operated under, often called a “SIPO”. Should you hold more conservative assets? Over the past few years which saw low interest rates and strong share market returns, we often saw clients reducing the percentage of the portfolio invested in banks etc, with more invested in shares etc. Now that fixed interest returns are increasing is it time to revisit that position?

The key point overall is to be aware of what the markets are doing, but not to be panicked when they do fall. You should always expect the market to fall, and if you would be worried if it were to, then you should probably either not be investing in that market or you should talk to your investment adviser about how to mitigate that risk.

Investing is a long-term journey, and it is full of ups and downs, although overtime history tells us that markets do keep going up.

Treating children equally and helping them into the housing market
Ignoring for a moment the how to help children into a home, which we have covered previously and will revisit again soon in the future, the issue of how to treat children fairly and equally is often more difficult to achieve an answer to.

Let’s consider a hypothetical situation as an example.


  1. Bill and Mary have 2 children from their marriage. Johnny is 27 and is an investment banker, earning great money, most of which he spends on an extravagant lifestyle. Sue is 33, in a de facto relationship with 1 child aged 2. Both her and her partner earn modest wages and despite a frugal lifestyle don’t seem to be getting ahead after paying rent and their bills, each month.
  2. Johnny lives in Auckland and Sue lives in a medium provincial town.

If we start with a basic principle of wishing to treat the kids equally how does the family trust, of which we are an independent trustee, counsel Bill and Mary?

The factors to consider in making any decisions are as follows:

  • Location – what is the price of a modest 3-bedroom home in a reasonable suburb?
  • Where do they want to live? Johnny is likely to want to live in Herne Bay as an example.
  • What have they saved?
  • What are their incomes?
  • What are their lifestyles?


To be fair this is an extreme example, chosen to highlight two ends of the spectrum. However, it is likely that Johnny would be seeking more assistance from either the bank of Mum and Dad or the Trust than sue, whereas he is actually more financially able than Sue.

Equality does not mean treating the 2 of them identically. Consider how you would handle the passage of time and inflation as well if for example the purchase of the 2 houses was separated by some years in a highly inflationary period.

Our starting point is to assess firstly what Bill and Mary can realistically afford to do. If they do gift or loan funds (we clearly prefer loan and security), is it likely to be able to be repaid at all, or will they be likely to even get interest?

After that, we would normally consider the relative position of each child. Johnny clearly should be better able to support himself and to save more of a deposit. He also will have a higher income to fund a larger mortgage. Then consider the relative areas/prices of the houses. We tend to benchmark to a verifiable index like the average house price in Auckland so it can be inflation-adjusted over time.

In this case Sue may need less funds but is probably more deserving of her parents support than Johnny who may be perceived as being “entitled”.

Finally, with a child Sue’s needs are more real and pressing than Johnny’s. He has time to save and no family yet. While we have not put a numeric answer to this case study, as independent trustees we would attempt to see Sue assisted first, then look to assist Johnny either now or in the future depending on the financial position of Bill, Mary, and the trust. He may also need to learn to curb his lifestyle, save some dollars, and lower his expectations of where he will end up living.

As an unbiased external party, we can bring independence and clarity to situations like this. Above all else we act as a foil against the pressure brought to bear on parents like Bill and Mary.

To Read this article and more in our latest eMagazine Covisory Connect please click this link



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