KMWL Market Report

The second generation: family trusts and estate planning

Written by: KP Carmody & Co

family trusts and estate planning
family trusts and estate planning

Family trusts can be a valuable tool to build and protect cross-generational wealth. They have key asset protection, income flexibility and taxation advantages, providing benefits to family groups for many years.

Trust assets require particular care as the trust does not cease on death of the controlling individual and the assets do not automatically form part of their estate. Rather, the assets continue to be held by the trust (in NSW for up to 80 years). Therefore, it is crucial to appropriately pass control of the trust (during your lifetime, or on your death).

Passing control of a family trust

Passing control of your family trust to the next generation can requires careful planning, to ensure equal representation and to avoid disputes and unethical outcomes.

The key positions of control in a trust that usually require consideration are:
• trustee; and
• appointor and / or guardian.

The starting point is always – review the trust deed!

Trustee

The trustee controls the day-to-day management and income/capital distributions and may be an individual/s or corporate trustee (shareholders / directors).

• Trust assets are in the name of the trustee, and a corporate trustee is usually recommended for clear ownership and continuity purposes. Passing control of the trustee role involves:

• Corporate trustee: gifting a person/s to receive the shares in their Will, or transferring the shares during their lifetime. In turn, the new shareholder can nominate new directors. It is important to review the company constitution to consider any implications, and this may need to be revised to suit succession objectives.

• Individual trustee: the terms of the trust deed will usually set out the mechanism for a successor trustee to be appointed.

Appointor/guardian

The appointor (sometimes called the principal) traditionally has the power to appoint and remove the trustee. In effect, the ultimate control of the trust is held by the appointor (not all trusts have an appointor / guardian).

The trust deed usually provides for the succession of the appointor role, and may provide ability for the current appointor to nominate a successor appointor during their lifetime by deed, or by Will. There may also be a default position in the absence of any nomination.

The guardian is a role is some trust deed which requires consent by the guardian before certain decisions are exercised (used less commonly). In modern trust deeds this role is usually amalgamated with the appointor role.

Trusts can be valuable in asset ownership, however they must be appropriately addressed in succession planning to ensure that control of the trust (and the benefit of trust assets) pass to those whom you wish to benefit.

KP Carmody

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KMWL Market Report