What Happens to a Family Trust When You Die?
Many people establish a family trust to hold property, investments or business interests. But there is one question that is often overlooked: what happens to the trust when you die?
A common misconception is that everything you control automatically passes under your will. With a trust, it is more complicated. The trust structure and, importantly, the trust deed can determine who takes control next.
That makes trust succession planning an important part of your broader estate plan.
Does a Family Trust Form Part of Your Estate?
Generally, the assets held within a family trust are not assets you personally own and cannot simply be gifted through your will.
Instead, a trust usually involves several important roles.
The trustee is responsible for administering the trust and exercising its powers. The beneficiaries are the people or entities who may benefit from the trust.
Many family trusts also have an appointor or principal. Depending on the trust deed, this person may have significant control because they can appoint and remove trustees.
For estate planning purposes, identifying who holds these roles — and what happens to them following death or incapacity — is essential.
What Happens When a Trustee Dies?
There is no single answer that applies to every trust.
The first document to review is the trust deed.
The deed should be examined to determine how trustees can be appointed and removed and what happens when someone holding an important control position dies.
For example, if there are two individual trustees and one dies, the surviving trustee may continue. If the final trustee dies, however, the mechanism for appointing a replacement becomes particularly important.
Where a company acts as trustee, succession planning may also need to address who controls that company.
What Happens to the Appointor of a Family Trust?
The appointor can be one of the most important roles to consider in trust succession planning.
Depending on the deed, the appointor may have the power to remove an existing trustee and appoint another. That can give the appointor significant influence over who ultimately controls the trust.
A trust deed may provide that, following the appointor’s death:
their legal personal representative assumes the role;
they can nominate a successor in writing at any time; or
a successor can be nominated through their will.
Because trust deeds vary considerably, these arrangements should never simply be assumed.
What Is a Deed of Succession?
In some circumstances, a deed of succession may be used to establish who will take over a key role, such as appointor, after the current person dies.
Planning this while the current controller is alive can provide greater clarity for family members and reduce uncertainty later.
Depending on the trust and the family’s circumstances, it may also be appropriate to consider a deed of variation to update aspects of an older trust deed.
Any proposed changes should be considered carefully, including their potential tax and financial consequences.
Should Your Will Mention Your Family Trust?
Your will may form part of your trust succession strategy, particularly where the trust deed allows a successor appointor or another control position to be nominated through the will.
However, the will should not be considered in isolation.
Effective planning may require your solicitor to review the trust deed alongside your will, enduring power of attorney, company structures and other succession documents.
Frequently Asked Questions
Do the assets in my family trust automatically pass under my will?
Generally, no. Trust assets are held within the trust structure rather than being personally owned assets that automatically form part of your deceased estate.
Can I nominate the next appointor in my will?
Potentially. Whether this is possible depends on the terms of the particular trust deed.
What if a company is the trustee?
You may also need to consider succession of control of the trustee company as it relates to its directors and shareholders.
Do I need to update an old family trust?
Not necessarily, but an older trust deed should be reviewed to determine whether its succession provisions still reflect your current family, business and estate planning objectives.
Final Thoughts
Having a family trust is not enough — you also need to consider who will control it when you are no longer able to.
Reviewing the trust deed, trustee structure, appointor provisions and succession arrangements alongside your will can help ensure control passes in the way you intend.
If you have a family trust and are unsure what happens to it after your death or incapacity, contact Lidia Vicca or book a free consultation to review your trust succession and estate planning arrangements.