ESTATE PLANNING

Who controls the assets in trust?

The solution

Chapter 2 - Asset inside a family trust

Many people have assets owned in family or discretionary trusts. Assets held in a trust are not owned by any one person and cannot be controlled by a will. This is, of course, one of the reasons why family trusts are used so frequently: they provide for perpetual succession, in the sense that they go on beyond the life of one individual and allow for wealth to be transmitted between generations. They also protect family assets from the risk of divorce and bankruptcy of an individual family member, and one of the key principles here is that no one beneficiary has a right against the trustee that is recognised at law (and if you do not own it you cannot lose it).

So if a client controls the assets in a family trust it is not possible to deal with those assets specifically under the will. A will only deals with assets owned personally by the will maker.

The best that can be done with assets that are not owned personally and are owned in a family trust is to ensure that the correct people are given control of the trust. This is usually the same people who are expected to inherit under the will.

Most trusts will have a corporate trustee so a good start is to give shares in the company to relevant beneficiaries, who may also be surviving directors. In the simple scenarios discussed above, shares would form part of the estate and pass either to a surviving spouse or children or a testamentary trust. But just dealing with the shares in the trustee company is not sufficient.

Who controls the assets in a trust?

 

The real question is who has the power to appoint the trustee? This person, called the “appointor”, controls the trust. The appointor has the power to remove and appoint trustees and so has ultimate control of the trust. Usually the appointor’s role is shared between a husband and wife and it is only upon both of them passing away that the issue needs to be addressed.

Some wills use the word “guardian”, “supervisor”, “protector” or “principal” rather than “appointor”. Nothing turns on this and they are the one and the same thing.

The trust deed will specify who holds the power of appointment, and what needs to be done to exercise the power of appointment in favour of another person or persons if the current appointor dies, become incapable of acting as the appointor or ceases to wish to act as the appointor.

Usually this will involve a deed of appointment being exercised in which the new appointor is formally recognised, or appointed, as the appointor and in which the old appointor may resign or otherwise cease to act as the appointor.

Often the trust deed may provide that the power of appointment passes to the appointor’s legal personal representative on the death of the appointor. This is on the surface at least a common sense provision but it can create many other problems, and once again expert legal advice is recommended.

 

The trust deed may also provide a mediation process or other dispute resolution process to determine disputes between appointors.

The solution

 

A common solution is for the wills to provide that where a will maker is the sole remaining appointor of any trusts, then the will nominates the executors of their will (or the trustees of their testamentary trust if one is to be established) to be the appointors of those trusts.

 

That is, the will exercises the power of appointment, often using words like:

 

I direct that any power of appointment I hold in any trust be exercised in favour of my legal personal representative and that my legal personal representative deal with the assets in that trust as if they were personal assets subject to the control of this will and last testament.

 

More complex scenarios will require different and more specific arrangements to be made either in the wills or in separate trust documents.

1. Wills
3. Superannuation and
Estate Planning

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