Estate considerations with discretionary trusts

By David Foulds - October 17, 2017

It is common these days for people to hold a significant part of their business or wealth in discretionary trusts. A common misconception is they own the assets held in "their" family or business trusts.

A key characteristics of discretionary trusts is that the people who benefit from the trust assets do not own those assets.

If you do not own the assets held by a trust, you cannot pass on ownership of those assets through your Will.  What you can do, however, is pass on control of the trust, and thereby pass on control of the assets held by the trust.

The strategies employed to protect and control these trusts is of particular importance. 

The following principles and strategies maximise secure control of your trusts during your lifetime, and pass control with certainty of outcome upon your death or at a time of your choosing.

Trustees (having day to day control of the trust assets)

  • Always consider having a company act as trustee.  You won’t then have a trustee die or leave your organisation.  In addition you can pass control of the trustee by passing ownership of the company's shares.
  • Have the shares in the trustees consistently owned by the same person/entity. 
  • Always consider having at least two directors of the trustee company.  This means that no individual can act alone or unnoticed.  In addition, this provides some protection from the intervention of the Family Court.  The Family Court can treat trust assets as though they are owned by an individual.  One of the tests the Court uses is whether the individual can, by themselves,  control and move around the assets of the trust.

Appointor (can appoint and remove the trustee)

  • Ensure that each trust deed allows the existing appointor to simply and certainly nominate a replacement or at least nominate a successor.
  • Where there are a number of trusts in your group, consider using a company to act as appointor.
  • Where you are the appointor, ensure you nominate your chosen successor in the manner required by the trust deed.
  • Where the appointor is a company, ensure your Will passes the shares in this company to the person(s) you want to take cover control of the appointor power.
  • It is also possible to have more than one corporate appointor.

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