Australia: Succession planning for the family trust - Common approaches

The previous article in this series summarised some of the key factors to consider when starting to plan for the succession of your trust.

One of the key aspects when implementing a succession plan for a trust is to look to the end game....what is the future of this trust going to be after the death of the matriarch or patriarch (or both) who currently control the trust....who controls it, who benefits from it and what does it do? Understanding the detailed nature of the trust will assist in reaching this conclusion.

The future objectives for any particular trust will, by necessity, require consideration of a number of factors including:

  1. the intended future activities of the trust;
  2. the identity of the person or group of persons who will be able to make decisions concerning the conduct of the trust;
  3. the identity of the class of people and entities who will benefit from the trust;
  4. the way in which the intended beneficiaries will benefit, including when they will benefit and the extent to which they can benefit.

The current structure of the trust may not necessarily be consistent with the achieving of these objectives and, indeed, could cause tension in family relationships and possibly lead to significant family disputes that are time consuming and costly to resolve.

Common Options

In very simple terms the following common options are implemented in succession planning for trusts.

  1. Terminate the trust in the event of the death of a nominated person.

This option sounds simple and could avoid potential family disputes in the future. However, depending on the nature of the assets in the trust at the time of termination, terminating the trust can be a complex exercise and can potentially give rise to significant tax and stamp duty implications.

Also, who gets the assets? That depends on the terms of the trust deed. Clearly it is critical to understand what the clauses in the trust deed say about the distribution of the trust assets in the event of termination. Will these clauses work properly or are they likely to cause dispute? Do these clauses accurately reflect your intention for the distribution of your family assets or should they be amended to more accurately reflect your intentions? Should the assets of the trust be distributed to the deceased estate of the person whose death triggered the termination so that they can be dealt in accordance with their Will....or is that problematic if there is a risk of a challenge being made against that estate?

  1. Maintain the trust in its current format and on its current terms.

By adopting this option the matriarch or patriarch controlling the trust has reached a conclusion that the terms of the trust are satisfactory for the next generation of controllers and the activities of the trust do not expose the next generation of controllers to problems that they cannot adequately deal with.

What is critical is to make sure that the right person, or the right group of people, are holding the appropriate control offices in the trust at the right time. The office of trustee needs to be considered as does the office of appointor (being the person who has the power to remove the trustee and appoint a new trustee). Remember to check the trust deed to see if there are any other control offices that exist in your trust.

Understanding the mechanical operation of the clauses in the trust deed that deal with the passing on of control of the trust is critical in order to ensure that objectives are achieved, and no unintended adverse consequences arise.

  1. Maintain the trust but change the terms by which the trust operates.

This is a very common option that is adopted in dealing with succession planning for many trusts. By adopting this option the matriarch or patriarch controlling the trust has reached a conclusion that, while the trust might be operating perfectly well while they are alive, they can foresee problems with the operation of the trust into the next generation. The problems that can potentially arise are many and varied and do depend on the nature of the relationships within the family and also the nature of the trust in question. Similarly the solutions can be many and varied.

In essence, it is common to deal with any or all of the following specific structural aspects of the trust when trying to alleviate (or minimise) the risk of problems arising into the next generation.

  1. Control of the various offices. This is absolutely critical and is worthy of a separate article in its own right. In short though, understand the various control offices that currently exist in the trust and how they operate, consider whether any additional controls need to be built in, consider who should control the trust in the future (ie the individuals involved in the decision making) and what voting rights those individuals should have.
  2. Beneficiaries. Who is included in the class of beneficiaries of the trust and will this be appropriate into the future? What are the current rules by which the beneficiaries can benefit from the trust? Will these rules work fairly and sensibly after your death? Are there any restrictions on when and how the beneficiaries can benefit from the trust? If not, should there be?
  3. Investment Powers. If the investment powers are currently very broad, should they be restricted in any way into the future so as to assist in minimising the perceived investment risk? This issue might extend to consideration of gearing ratios, portfolio mix of asset classes and the like.

Interaction with your Will

Finally, it is essential to consider the various connections that your trust has to your Will.

While the assets in the trust will not, prima facie, be included in your personal estate for distribution in accordance with the terms of your Will, that is only part of the story. Many connections between the Will and the trust do exist most importantly in terms of the mechanisms under the trust deed by which control of the trust is passed and the impact that beneficiary loan accounts can have in shifting wealth from the trust to the deceased estate. Also, a topic worthy of a separate article.

Conclusion

While complexity does exist in dealing with succession planning for trusts and careful planning must be undertaken to get it right, there are common issues that do regularly arise for many families with many trusts and those issues do have common solutions. Tailoring the solutions to meet the family objectives is critical to the succession planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions