The most common type of trust where people hold assets, is a Discretionary Trust, or more commonly known as a Family Trust. If your trust owes you money, either as a loan, or from a previous year’s income distribution, this amount will be included as an asset in your name and will be covered by your Will. However, the other assets of the trust will not.
There are three important roles in a trust:
1 The trustee
The person(s) or company that is responsible for conducting the affairs of the trust. The trustee is the legal owner of the assets and holds these assets for the beneficiaries. Ultimately, the assets in your trust will be controlled in accordance with the trust deed.
2 The beneficiaries
The list of people, entities or organisations that benefit from the assets, by either income or capital.
3 The appointer or principal
The person(s) who has the ability to remove and appoint the trustee. It is critical that the appointor position is addressed in your Estate Plan under your Will and in the Trust Deed itself.
A common scenario…
Joe and Mary are married, have three children and their Family Trust owns investments. Joe and Mary are both trustees and appointors. As stated under the Trust Deed, following the death of an appointor, their personal legal representatives (i.e. their executor) take responsibility for their appointor duties. The Trust Deed lists all future spouses of Joe and Mary, current and future children, and stepchildren as beneficiaries.
Mary dies suddenly in a car accident and under her Will, appoints Joe as her executor. Joe then becomes the sole trustee and appointor of the trust. Joe meets Wendy and has another child. They both decide on creating a new Will – appointing each other as executors.
When Joe died, Wendy (Joe’s executor) took control of the appointor role under the trust. Wendy appoints a company in which she is the sole director and shareholder as trustee. As Wendy and her child are eligible beneficiaries, Wendy decides she will distribute all the income and capital of the trust to herself and her child, excluding Joe and Mary’s children, even though the assets were created while Mary was alive.
If Joe and Mary both died in the car accident and had only appointed their two eldest children, Peter and Jane (who are over 18) as their Executors, Andrew (16) would have no control over the trust. If we assume that the trustee of their trust was a company and only had two shares issued, if the shares were left to all three children in their Will, each child would own one-third of the two shares each.
When it comes to voting, there can only be one vote per share. One way of ensuring that each child has an equal vote is to ensure each child receives a share. A trustee company should be established with a minimum shareholding of 120 shares. This number is divisible by many combinations: 1, 2, 3, 4, 5, 6, 8, 10, 12, 15, 20, 24, 30, 40, 60, and 120. This means that you can leave the shares directly to each beneficiary so that each shareholder can have a say in the company, and who the directors are.
When individuals pass away, their executor/s make decisions on their behalf as the legal representative of the trustee. It is therefore critical you make sure the right people are the executor/s.
For more pointers on Estate Planning, join us next week when we talk about Companies & Super Funds. We can assist you with all aspects of Estate Planning, be with you at meetings with your lawyer or coordinate the process for you.
Feel free to call us on 07 3833 3999 for more information or visit us at: http://www.financiallywellorganised.com