Welcome to my weekly Insights blog. Once a week, we cover topics such as wealth creation, super, estate planning and tax. This is Part 4 of our 10-part series on how wealthy Australian families build, protect and pass on their wealth.
In Part 1, we saw why wealthy families hold investments in a family trust. But here’s a question many trust owners have never asked: when you die, who controls the trust?
Assets in a family trust don’t form part of your estate, so your Will can’t simply leave them to someone. What passes on is control. If that isn’t planned, the wrong person can end up deciding who benefits from everything you’ve built.
Key takeaways
- Your Will cannot give away assets held in a family trust, because the trust owns them, not you.
- Control of a family trust usually sits with the appointor, who can remove and replace the trustee.
- The trust deed decides who becomes the appointor after you die. If it’s silent, control can pass in ways you didn’t intend.
- With a corporate trustee, control also depends on who inherits your shares in the trustee company and who becomes a director.
- Money the trust owes you, such as a loan account or unpaid distributions, is part of your estate and should be dealt with in your Will.
The three roles that matter
| Role | What they do | Why it matters |
|---|---|---|
| Trustee | Legally owns and manages the trust’s assets and decides distributions each year | Runs the trust day to day |
| Appointor (sometimes called principal or guardian) | Can remove the trustee and appoint a new one | Holds the ultimate control |
| Beneficiaries | The people and entities who can receive income or capital | Receive the benefit, but don’t control the trust |
Think of the appointor as the person holding the keys. Whoever is appointor can, in effect, decide who runs the trust, and therefore who benefits from it.
What happens when you die
If you’re the appointor. The trust deed sets out what happens. Some deeds name a successor. Others pass the role to your legal personal representative (your executor), or let you nominate a successor in your Will. Some older deeds say nothing at all, which can leave the trust without anyone able to change the trustee.
If you’re an individual trustee. Any surviving trustee usually continues. If you were the sole trustee, a new trustee needs to be appointed, often by the appointor, and the trust’s assets have to be transferred into the new trustee’s name. That can be slow and costly, especially for real estate.
If there’s a corporate trustee. The company keeps going, so the trust’s assets don’t need to be re-titled. But someone still needs to control the company. Your shares in the trustee company pass under your Will, and the company needs a new director if you were the only one. This is why many families use a corporate trustee and plan its succession carefully.
How wealthy families plan trust succession
- Read the trust deed. Find the original signed deed and every variation since. Check who the appointor is and what happens to the role on death or loss of capacity.
- Name successors. Nominate successor appointors, often a spouse first and then one or more adult children jointly, in the way the deed allows.
- Use a corporate trustee. It makes changes of control much simpler and avoids re-titling assets.
- Align your Will. Your Will should deal with your shares in the trustee company, any appointor role the deed lets you pass on, and any loans the trust owes you.
- Plan for loss of capacity, not just death. Check whether an attorney under your enduring power of attorney can act as appointor, and whether the company has an alternate director.
Don’t forget the loan account
Over the years, many people lend money to their family trust, or are allocated distributions that are never actually paid out. These amounts are debts the trust owes you, and they form part of your estate.
If they aren’t planned for, your executor may have to call in the debt, forcing the trust to sell assets. Your Will should say who receives these loans, or you might forgive them during your lifetime after getting tax advice.
Frequently asked questions
Can I leave my family trust to my children in my Will?
Not directly, because the trust’s assets aren’t yours to give. But you can usually pass control of the trust through the appointor role and your shares in a corporate trustee, as long as your Will matches what the trust deed allows.
Who is the appointor of a family trust?
The appointor is the person, or company, named in the trust deed with the power to remove and appoint the trustee. Because of that power, they effectively control the trust.
What if I can’t find my original trust deed?
Act now rather than leaving it for your family. A lost deed makes it hard to prove who controls the trust and what powers they have. A lawyer can often help reconstruct it from copies and records, but it’s far easier while you’re alive.
Make sure the keys go to the right person
A family trust can protect your wealth for generations, but only if control passes smoothly. Checking your deed, naming successors and lining up your Will takes a few hours now and can prevent years of family disputes later.
At TaxAssist Accountants Dee Why, we help Northern Beaches families review their trust deeds, loan accounts and succession arrangements, working alongside your estate lawyer. Call us on (02) 9045 1511 or email [email protected] to book a trust review.
This article contains general information only and does not take into account your personal circumstances. It is not legal or financial product advice. Trust deed variations and Wills should be prepared by a qualified lawyer.
