Family discretionary trusts are a common way to preserve wealth, protect assets and ensure they are passed down to lineal descendants.
While many people are diligent in updating their Wills regularly, an area often overlooked is the succession of their existing family trusts due to the assumption this is dealt with as part of their estate plan.
Unlike personal assets, trust assets do not automatically form part of your estate when you die and can continue for a period of up to 80 years from their creation regardless of your passing. This means they are not dealt with under your Will nor do they cease to exist when you die. Instead, control of the trust usually falls to the following:
- the Appointor (the power to remove and replace the trustee);
- the Trustee (the power to manage the trust and make decisions regarding distributions); and
- the Guardian or Principal (the power to oversee key decisions).
Together, these positions determine who holds ultimate control of the Trust and provides important checks and balances as to how a Trustee performs their duties and needs to be carefully considered.
Without proper consideration and clear succession arrangements, even a well structured trust can fall into the wrong hands resulting in family conflict or exposure to unnecessary tax complications.
This risk is particularly important to address where a trust holds significant assets such as shares in private companies and real estate. Even when a trust itself continues to operate, uncertainty over- who controls it can create confusion at a time where your family require clarity.
The case of Staley v Hill Family Holdings Pty Ltd [2024] QSC 176 highlights why clear succession planning is essential. After the death of Mr Hill (the original Appointor and one of the company directors and shareholders) A family dispute arose over control of the fundamental roles of Trustee and Appointor. Hill Family Holdings Pty Ltd as trustee of The Hill Family Trust by Deed removed the substitute appointor Mrs Staley and replaced her with Mr Porter as the New Appointor. Mrs Staley was not advised of her removal and as such sought the application to reinstate her position as Appointor and invalidate the Deeds. The Judge found the Trustee by way of broad variation powers contained in the Trust Deed acted in accordance with the scope of the trustee powers and was able to remove the Appointor as evidenced by the Deeds.
Disputes over control of a trust can become costly and may undermine the original purpose of creating the trust in the first place as detailed above. Had Mr Hill attended to the succession of these roles before his death a dispute may have been avoided.
The best way to prevent disputes from occurring is to ensure the trust deed is aligned with your personal objectives and provision is made to appoint appropriate substitute persons selected by you. To achieve this the trust deed should be carefully reviewed by a lawyer to identify:
- whether the deed successfully defines each role;
- that the definitions are up to date in accordance with legislative requirements;
- that the appropriate variation powers are present;
- the powers held by each role and how they relate to one another;
- that the beneficial entitlements align with your intentions;
- that successors to the trustee, appointors and guardians are the people of your choice.
The risk of not attending to your trusts in this way is that your trust assets may not be dealt with in accordance with your estate planning. Upon completion of such review your lawyer can provide advice in accordance with your instructions as to the best way to proceed, along with any required advice from an accountant as to any tax issues that could arise.
Please reach out to our succession planning team to ensure your trust assets are dealt with appropriately and reflect your intentions for the lifetime of your trust.
Co-written with Beatrice Victoria Taylor Peebles.
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.
