Discretionary or family trusts are often used by Australian family business owners seeking to separate business risk from their personal wealth. When the controller of the trust dies, the assets in the trust are not dealt with as part of their Will. What happens to trust assets will be determined by the control structure established by the trust deed. So, how should you approach trust succession when considering your estate plan?
Understanding Trusts and Wills in your estate plan
Discretionary trusts are relationships where a trustee holds legal title in the assets of the trust and manages them on behalf of a class of beneficiaries according to the terms set out in the trust deed. The role of trustee and beneficiary are important roles in the trust but there is another key role, that of the appointor.
The appointor is the person who appoints and removes the trustee. Sometimes known as the guardian, the person who acts as the appointor/guardian essentially controls the trust. Of first importance, when thinking about the administration or distribution of trust assets on your death, is choosing who will be your successor controller of the trust.
Wills, on the other hand, are legal documents that specify how a person’s assets and affairs should be handled after their death. A Will typically covers assets that are solely owned by the deceased at the time of their death.
If you would like to understand which assets can be dealt with by your Will, read this.
Can I nominate a successor controller in my Will?
Some trust deeds (not all) allow the current appointor to nominate a successor appointor via a Will, but that is quite a rudimentary approach.
A nomination in a Will:
- Does not contemplate a scenario where an appointor may be unable to act for reasons of incapacity or disqualification (such as bankruptcy or leaving the jurisdiction);
- Does not easily allow for situations where there are multiple controllers and multiple successor controllers being appointed;
- Does not allow the Willmaker to revoke the appointment before the death of the Willmaker without re-writing the Will or making a codicil;
- Does not allow for privacy. The document that creates the succession plan for the trust (i.e. the Will) forms part of the trust deed and is therefore available in full to third parties, such as banks, the ATO, land titles office etc.; and
- May be vulnerable to a Will challenge that either causes delay in effecting the successor controller’s appointment or causes the appointment to fail.
The alternative is the preparation of one or more Deeds that will ensure the retirement of the current controller and the appointment of a successor controller of a trust. We usually recommend the preparation of a Deed of Appointment on Event that allows you to appoint a successor controller(s) effective on the occurrence of a certain ‘trigger’ event, for example, your incapacity or death. This document, which now forms part of the trust deed, can be revoked, if you change your mind, before your death.
Further, if you wish the controller of your trust to deal with the assets of your trust in a particular way, then if allowed by the trust deed, we can fetter the discretion of the trustee to ensure certain distributions occur on your death.
You can read more about how to control a family trust when you die here.
How we can help
If controlling what happens to your trust assets is part of your estate plan, we can help you to understand your options under the trust deed. We can give you advice about how you can ensure your wishes are carried you out and help you by preparing a Deed of Appointment that ensure the person(s) of your choice control family trust assets on your death. If you would like to discuss further, call us on 1300 654 590 or email us.
The information contained in this post is current at the date of editing – 12 June 2024.
