Below is Chapter 1 of our ‘Controlling a Family Trust When You Die’ booklet. To read the other chapters of our booklet, click the links below:
- Chapter 2 – How do you give ‘fixed percentages’ to your children?
- Chapter 3 – Distributing assets from the trust on your death
- Chapter 4 – Putting in place a ‘control structure’
Who controls your family trust?
Who controls your family trust and its assets?
A ‘family trust’ involves two important roles: the trustee and the appointor.
The trustee manages the trust day-to-day. A key feature of a discretionary family trust is that no one has a ‘fixed interest’ in any of the income or assets of the trust. This means the trustee can decide who gets what from time to time. This is why these trusts are called ‘discretionary’ trusts.
The appointor decides who acts as trustee. This allows the appointor to remove the existing trustee and replace them with a new trustee. The appointor can appoint themselves as trustee, or appoint a company they control. The new trustee can then elect to distribute all the trust’s income and assets where the trustee pleases, including to themselves or an associate. Therefore, the appointor has ultimate control of the trust and its underlying income and assets.
In summary, the trustee controls who receives the income and assets of the trust, and the appointor chooses who acts as trustee. Both of these roles are therefore critical to determining who ultimately benefits from the trust’s income and capital.
Who controls the family trust when you die?
As noted above, the appointor is the person with the ‘ultimate control’ of your trust, because they can choose who acts as the trustee.
The role of appointor is not an ‘asset’. When you die your role as appointor simply ends. Who then takes your place as the ultimate controller of the trust depends on the terms of the trust deed. The trust deed is the document that initially sets up the trust, and then regulates how it is administered. A trust deed can be amended over the life of the trust, so you need to ensure that you have a complete version of the trust deed, together with any amending deeds.
If you were one of several appointors before you died, then the surviving appointor(s) will continue in this role. The surviving appointor(s) can then decide who is the trustee of the trust after you die. They can appoint themselves or a company they control as trustee, and then give 100% of the trust income and assets to themselves.
For example, if you and your spouse are appointors of a trust and you die, then your spouse will continue on as the sole appointor of the trust, with ultimate control over the income and assets of the trust. If your spouse re-partners and does not take care to ensure that control later passes to your children, control of the trust may inadvertently pass to your spouse’s new partner (or their children).
If you were the sole appointor before you died, then in most cases the trust deed allows you to nominate a replacement appointor. You can do this in a deed or often through your Will. But if you have not done this, then either no one will be the appointor (which may require court involvement), or the trustee itself, or your executor, will become the replacement appointor by default.
Once again, whoever becomes the appointor can appoint a new trustee, and that new trustee will have complete discretion to distribute the trust’s income and assets to whomever they wish. Therefore, the new appointor could decide to give 100% of the trust to themselves.
You do not want this power of appointment falling into the wrong hands.
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The information contained in this post is current at the date of editing – 3 April 2024.
