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Despite the bad press lately, discretionary trusts remain an important vehicle for protecting family wealth against relationship breakdowns and bankruptcy claims. While much care is generally taken when a trust deed is established, few families think about what will happen upon death or incapacity of the appointor.
Importantly, the assets owned by the trust don’t form part of a person’s estate and cannot be dealt with in a person’s will. This means separate decisions need to be made and documented about what happens to control of the trust on the appointor’s death or incapacity.
Control of the Trust
A common misconception is that the trustee controls the trust. Whilst the trustee determines how income and capital is distributed and generally manages the trust fund, the control of the trust rests with the appointor. It is the appointor who has the ability to remove and appoint the trustee.
Generally, discretionary trusts are initially established with both the appointor and main beneficiary being the same person. The trustee may be a corporate trustee with the key person also fulfilling the role of sole director.
So, who will take over these key decision-making roles when the key person dies?
Succession of the Trust
Each discretionary trust will have different mechanisms in place for determining what happens when the appointor dies. Some deeds may name a specific person to take over, or it may automatically nominate the appointor’s executor as the next appointor of the trust. Or the trust deed may not deal with succession at all.
Commonly, trust deeds may overlook entirely what happens if the appointor loses capacity.
What You Can Do
We recommend that you look at your trust deed regularly and see whether there is a plan in place and whether that plan is the right one for your family circumstances. Trusts are set up to run for a long time and the plan when the trust was established may not reflect your family needs now.
We have a team of experts who can advise you on how to ensure that the succession of your family trust meets your estate planning goals. If you would like to discuss, please contact our office on (02) 4288 0150.
Victoria advises on a wide range of property and commercial matters, including contract negotiations and real estate transactions. She has a passion for assisting clients in understanding complex legal issues so that they can successfully achieve their business goals.
