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In this edition of It depends, partner Scott Hay-Bartlem discusses whether you should involve your kids in the control of your family discretionary trust.
Video transcript
Welcome to this edition of It Depends. When I'm talking about whether I should bring my kids into control with me of my family, discretionary trust.
What is control of a family discretionary trust?
So, the first line of control of a family discretionary trust is the trustee, either the individuals or the company. And if it's a company, the directors, they're the ones who make the day to day decisions about the trust giving out income, giving out capital investments, all those kinds of things. If you've got a company, there's also the question of the shareholders, because the shareholders of that company will appoint and remove directors. The second line then is the appoint or role, sometimes called principal, sometimes called guardian. They decide who the trustees and so can appoint and remove the trustee and therefore have control over the trust.
What does bringing kids into control look like?
So, when we're looking at bringing kids into control of the trust we're looking at, do they become individual trustees or directors of the company? That's the trustee. If a company, are we giving them shares and how about the appoint or role. Now, we can do some but not all of those things. I've had situations where we've made kids directors of the trustee company but not shareholders or appoint rules so that the parents are keeping control of the trust, but involving the kids in decisions.
So, should I?
This is the it depends. Now, we often do this for families where we've got like a family business and we want to involve the children some or all of them in control of that family business. We might do it where we want to make sure that control of that trust will pass down to that child or those children. When something happens to the parent. And that can be very effective mechanisms. But you do need to remember that when you're bringing your kids in, they become decision makers. And so, you have to look at how are they going to outvote you. Do you want them involved in the kinds of decisions about a trust that you want them to? Also, if it's a business, will there be a liability issue and one that's coming up more and more unfortunately, if your child gets involved in a matrimonial dispute, do the trust assets get dragged into that dispute because they are a director or shareholder of the trustee or an appoint tool? Again, lots of think about bringing kids in. This is a short a short snapshot.
If you've got any questions or would like to discuss this issue more. Please contact a member of our team. Thanks for watching this edition of It Depends.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
