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Reviewing family trusts as part of your estate plan

Discretionary family trusts are a popular investment structure in which a trustee holds assets in a trust for a group of beneficiaries, usually for family members.

Benefits of family trusts include asset protection, tax advantages, and a way to pass family assets to future generations.

However, many are not aware that the assets in their family trusts cannot be transferred under their Will.

Why are my family trust assets not controlled by my Will?

The trust assets held by a family trust do not form part of your estate and cannot be distributed under the terms of your Will, as they are considered an non-estate asset. Rather, they are owned by the family trust, which is a separate legal entity.

If you hold assets in a family trust, you must think about what will happen to the trust in the event of your death. Depending on the terms of the trust deed, your family trust can continue well beyond your death.

What should I be aware of?

When reviewing your estate plan, it is necessary to read and understand:

  • the deed establishing the family trust and any deeds of variation or amendment;
  • how the shares in any corporate trustee are dealt with; and
  • the controlling positions in the family trust.

Control is key

Although the family trust assets will not form part of your estate, you can influence the future control of the trust through your Will.

When revieing your family trust deeds, it is necessary to look at the following:

  1. the succession of the trustee (and your shares in any corporate trustee);
  2. the power to remove and appoint trustees (commonly held by a person referred to as an appointor, principal or guardian); and
  3. the vesting date of the family trust.

It is also important to understand how a family trust operates and the roles within the trust, as this will affect how you plan your estate.

Role of the appointor

Depending on the terms of the family trust deed, it is usually the appointor (also sometimes referred to as principal or guardian) who has ultimate control of the trust. They are authorised by the trust deed to appoint and remove trustees.

The first appointor is generally the person who initiated the establishment of the family trust.

It is common for family trust deeds to include default terms, passing this power to the executor of the last surviving appointor.

However, the family trust deed may also provide the appointor with the power to nominate a new appointor in their Will. Your Will may provide that the position of appointor will be transferred:

  1. equally to your beneficiaries in your Will who you wish to have ultimate control of the family trust, or
  2. to an independent person who may not be a beneficiary of the family trust, but who you consider will act in accordance with your wishes.

Role of the trustee

The trustee is responsible for the day-to-day running of the family trust. The trustee’s powers are set out in the trust deed and their duties usually include:

  • allocation of the income and capital of the trust;
  • the administration of the trust’s investments; and
  • the maintenance of financial records and the decision of when the trust is wound up.

The trustee may currently be you (either solely or jointly with others) or a company in which you hold shares and are a director of. It is usually the trust deed that sets out how a trustee is replaced.

Depending on the trust deed, if you are the sole trustee of your family trust, on your death, your executor may become the trustee. If the family trust has joint trustees who are individuals, on the death of one trustee the surviving trustees will usually continue as the trustees of the family trust.

On the death of the last trustee, the executor of the estate of that trustee may become the trustee of the family trust.

The vesting date of the family trust

The vesting date is the date on which the family trust must be wound up. It may be a date established in the trust deed or chosen at the discretion of the trustee.

If the family trust was established for the benefit of a particular family member, the trust may not continue after your death. The trustee of the family trust can then decide to wind up the trust and distribute the assets to the beneficiaries.

If your trust is due to vest, we recommend you seek advice from your financial planner or accountant on whether the vesting of your family trust will have capital gains tax (CGT) or income tax consequences.

It is important to seek tax and legal advice when incorporating a family trust into your estate plan. This will help inform you of important things to consider and determine whether a family trust is right for you.

Do you want more information on family trusts and estate planning?

If you need assistance in reviewing your estate planning documents, to ensure your family trust marries into your estate plan, please feel free to contact us.

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The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, Wills, Estates and Probate Lawyers (WEP Lawyers) cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. WEP Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. WEP Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.

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Duncan MacDougall

Written by—

Duncan MacDougall

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