Trusts and your Estate Plan
When it comes to estate planning, one of the most overlooked areas is how discretionary family trusts fit into your broader succession plan. Many people who have a family trust aren’t entirely sure how it works, what the trust deed says, or how control is passed on. This article explains what you need to know about trusts and your estate plan, especially if your trust is linked to your business.
Why Trusts Are Not Personal Assets
One of the most common misconceptions is that assets held in a trust form part of your personal estate and can be gifted in your will. That’s not the case. A trust is a separate legal entity. While you may control the trust and benefit from its assets, you don’t own them personally, which means you can’t leave them to someone in your will.
What you can do, however, is control who takes over that trust after you pass away. This is where proper planning becomes essential.
Understanding the Trust Deed
The trust deed is the founding document that outlines the operation of the trust. It determines who controls the trust, how trustees are appointed or removed, and who the beneficiaries are. When preparing your estate plan, reviewing your trust deed is crucial. Pay particular attention to:
Who the current trustee is (individual or corporate)
Who the appointor or principal is (this is the person who can appoint or remove trustees)
How trustees and appointors are replaced in the event of death or incapacity
If your trust has a corporate trustee, you must also look at the company’s constitution and share structure. Control of the trust often lies with whoever controls the company.
Making Directions in Your Will
Even if your trust deed outlines succession, it’s best practice to make express directions in your will about who should take over key roles in the trust. This can help avoid confusion or disputes after your death.
Typically, your will can include directions on:
Who should become the trustee
Who should be the new appointor or principal
Many trust deeds allow this type of direction via will, but it’s something that must be reviewed and confirmed.
Why Clients Often Don’t Know What Their Trust Deed Says
In practice, many clients have never seen their trust deed. It was likely set up by an accountant years ago and hasn’t been looked at since. It’s common for the deed to be filed away and only brought out at tax time or when acquiring property. But without knowing what’s in the deed, it’s impossible to plan properly for succession.
This is why reviewing your trust deed is one of the first steps in preparing a comprehensive estate and business succession plan.
Planning Ahead with a Trust Variation
In some cases, we recommend varying the trust deed during your lifetime to appoint a backup or alternate appointor and/or trustee. This avoids relying solely on the will and can provide greater clarity and control. Trust variations must be done carefully and in accordance with the terms of the deed and any applicable laws.
How This Fits Into Business Succession
If your trust is connected to your business, getting your succession planning right becomes even more critical. You want to ensure that the person or people stepping into control are ready and capable of continuing your business operations, or managing the wind-down or sale of your interests.
Spouses and children are often named beneficiaries in a trust, which can lead to unintended consequences if succession isn’t carefully managed. Reviewing your trust structure alongside your estate plan ensures your intentions are honoured and your business can continue or be managed appropriately after your death.
Final Thoughts
If you have a family trust, don’t leave succession to chance. The best place to start is by locating your trust deed and reading through its terms. Then, seek legal advice to ensure that your estate plan and trust work together. A properly integrated strategy can protect your legacy, avoid disputes, and make things easier for your loved ones down the track.