The Second Generation – Trusts and Succession Planning
Family Trusts can be a very effective at building and protecting wealth, including
generational wealth. The clear benefit of a family trust is that it may offer asset protection,
income flexibility and significant tax advantages, providing benefits to your family.
The Family Trust does not cease on the death of the controlling individual and trust assets
do not automatically form part of the deceased estate. The assets continue to be held by
the trust for the life of the trust (the term of which is set out in the trust deed and can be
a maximum of 80 years in NSW).
Who Controls the Family Trust When I die?
This will depend entirely on how your Discretionary Trust is drafted and is generally set
out in the Trust Deed, that is the document that establishes the rules of the Family
Passing control to the next generation may require some planning with your estate
planning team, to avoid any unintended consequences once you pass away. The Trust
Deed is the first document your succession planner will ask for or in the event of your
passing as it will almost always set out the rules of succession.
The trustee of the Family Discretionary Trust is arguably the most important choice you
will make as the trustee controls the management of income and capital distributions to
the classes of beneficiaries established under the Trust. As the Family Discretionary Trust
is completely discretionary (and so the Trustee may distribute all of the income to one or
more beneficiaries and none to others), this could have unintended consequences if
there is a family dispute (for example when a beneficiary is estranged from the family,
the trustee/s could decide not to make any distributions to that beneficiary at all which
you may not have intended). The Trustee can be an individual or a corporate trustee.
Depending on how you have established your trust, passing control generally involves
either looking to the Trust Deed to appoint an individual trustee (noting the terms of the
trust deed will generally set out the ways in which the successor will be appointed), or, in
the case of a corporate trustee, you would be required to gift to a person or persons your
shares in the company or transferring your shares whilst you are alive so that the
shareholder can nominate a director or directors.
The appointor has the power to appoint and remove the trustee. If your trust deed
nominates an appointor, they have the ultimate power if they are unhappy with the
trustee’s decision making. The trust deed will generally set out the mechanisms for the
succession of this role, including any nomination during the appointor’s lifetime or by will.
It is important to look to the trust deed to determine the succession plan and to get
specialist advice when considering establishing a Discretionary Family Trust noting the
importance of good drafting of the Trust Deed.