Trusts and Estate Planning

If you have an interest in a family trust, it is important to review the deed (and any amending deeds) establishing the trust so that you are aware of the terms governing your trust, before making your Will.

You need to consider the following issues when making your Will.

Trust assets are not governed by a person’s Will

Trust assets cannot be dealt with in a person’s Will and cannot be managed pursuant to a person’s Power of Attorney. They can only be dealt with by the trustee in accordance with the terms set out in the Trust Deed. It is therefore important to ensure that on the death or incapacity of the trustee (or on the death of a shareholder/director of the trustee company) the position of the trustee, or control of the trustee company, will pass to the right person.  

Appointor

Pursuant to the terms of the trust, there may be a person who has the right to replace the trustee with someone else of their choosing. This person is often referred to an “Appointor” or “Principal” of the trust and is the person with ultimate controlling power in relation to the trust.

The trust terms will often enable the Appointor to choose a replacement Appointor on their death or incapacity, in their Will or in a deed. It is, therefore, important to review the terms of the trust to see if and how a replacement can be appointed and to ensure that the appropriate provisions are included in the Will of the current controller.

Loan accounts

It is not uncommon for a person to loan monies to a trust or for trust distributions to be recorded as monies owed to a person.

If a person who is owed money by the trust dies, unless the terms of the loan provide otherwise, the deceased’s executor may be obliged to require the repayment of the loan, so that the funds paid can be distributed to the beneficiaries.  

This could result in the forced sale or distribution of trust assets, which may trigger capital gains tax or other losses. To avoid this, you can:

• ensure the loan terms do not automatically allow the executor to require repayment; and/or
• include appropriate provisions in the Will of the person authorising the executor not to demand immediate payment or gift the right to repayment to someone who will not require immediate payment.

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Disclaimer: This post contains information of a general nature only and is not intended to be used as advice in relation to a specific matter. Although every care has been taken in preparing the document, it may not be accurate or complete, particularly in the context of specific circumstances. MJM Lawyers disclaims responsibility for any errors or omissions.