Family Trust, Business & SMSF Estate Planning
What happens to my Family Trust if I die?
The assets in a family trust are not governed by your Will. The trust is a separate entity and ‘lives on’ after the original controllers pass away. Therefore it is critical that you put in place separate documents to select who will control the trust if you die or lose capacity. Under a typical family trust, the person who controls the trust can access the assets and income of the trust. Who you select to control the trust should align with your overall testamentary wishes as contained in your Will and other estate planning documents.
Estate planning for my companies
You may also be a shareholder of a private company, such as a trustee company, a trading company or a company that is a corporate beneficiary of a Family Trust. Shareholders (or ‘members’) of a company usually have rights to the assets of a company on winding up, along with dividend and voting rights (including voting on the Directors). Most company constitutions specify that where shares are left to more than one person, the first person named on the share register has the vote. This can result in inequality amongst shareholders, particularly where for example you have left your shares to your children, and the eldest child invariably appears first on the title.
You need to consider who your shares in these companies will pass to on your death and how the voting rights will work in terms of who will have control of the company. Who has control is also important if you become incapacitated. These issues can be solved with good estate planning.
How can we help?
These entities, which are so advantageous while you are living, become tricky to incorporate into your estate plan because their assets do not form part of your estate governed by your Will. As such, it is important to ensure that the control of these entities (and their underlying assets) pass to the people that you intend on your death and are safeguarded for your benefit in the event of your incapacity.
Estate planning for companies and trusts require the expertise of an experienced estate planning lawyer who has a good understanding of these commercial entities. Estate First Lawyers can advise you fully and put in place the documents that each entity needs to fulfil your estate wishes.
What is a family trust?
A family trust is a common way of describing a discretionary trust that is usually set up for holding and protecting a family’s assets, conducting a family business or for tax planning purposes. It is an agreement which is written down in a document called the family trust deed. This legal agreement governs the operation of the trust and can also have provisions around the succession of the trust on the death of key positions.
Whatever your reason for family trust planning, it’s essential to work with a family trust attorney who’s well-versed with the process.
What are the benefits of family trusts?
In general, family trusts are established for the following benefits:
- Tax Planning – In some circumstances, income earned within a trust can be distributed to beneficiaries who pay tax at their marginal rates of tax, as opposed to the rate of tax of the trustee.
- Property Investment Flexibility — Compared to superannuation, trusts have more relaxed rules in relation to holding assets like property, including rules around borrowing and interrelated party transactions.
- Asset Protection — A trust can purchase a home or property for the use of a beneficiary without the need for ownership to pass to that beneficiary. The ownership of the property stays with the family trust. This means that if the beneficiary is sued, then there is possibly a layer of protection before the asset can form part of the claim.
- Retirement Planning — The flexible structure of family trusts allows for opportunities to accumulate wealth, which can be used to supplement superannuation savings during retirement.
- Capital Gains Tax (CGT) — Unlike companies, family trusts (currently) have CGT advantages in the form of capital gains tax discounts for assets held more than a year. Please note though that this is a complex area and specialist tax advice is highly recommended.
Does estate planning include trusts?
Family trust assets are not considered part of your estate, hence, they are not subject to your wishes embodied in a valid Will. Instead, your focus should be on the succession of the role of Appointor/Principal within a trust, and to ensure that your family trust deed allows for the succession of this role. This is a very complex area that our expert family trust lawyers can assist you with when considering your estate planning.
Why have a company as a trustee for a family trust?
Risk is an inherent aspect of running a business. To minimise risk, you may consider establishing a company to act as the trustee (ie. the controller) of the trust instead of an individual. This strengthens the asset protection of the trust because the assets of the trustee are now that of the corporate trustee, which often holds nothing as it acts solely as a corporate trustee of this trust.
However, trust planning is a multi-step, complicated affair. Therefore, make sure you work only with seasoned family trust attorneys like Estate First Lawyers. Contact us today.
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Frequently Asked Questions
Why is estate planning for your family trust and business structures important?
You may hold substantial assets in your family trust or private company. It is therefore important that the estate planning for these entities is properly considered to ensure that the control of these entities (and their underlying assets) passes to the people that you intend on your death or incapacity.
Without turning your mind to these important considerations, the control of these entities (and their underlying assets) may end up in the wrong hands. That person could then administer them for their own benefit, rather than for the people who you may have intended to benefit.
What is the difference between a Trustee and an Appointor of a Family Trust?
The Trustee is responsible for the day to day management of the Trust. They decide how the funds are invested and are responsible for distributing the trust assets to the beneficiaries in accordance with the terms of the Trust Deed.
The Appointor (sometimes called a ‘Principal’) is responsible for ‘hiring and firing’ the Trustee of the Trust. Depending on the terms of the Trust Deed, the Appointor may have the power to remove the Trustee and appoint an additional or replacement Trustee (with or without the consent of any other person).
The Appointor is, therefore, the most powerful position of control when it comes to a Family Trust. You need to consider who will become the Appointor of your Family Trust if you pass away or lose capacity. Estate First Lawyers can assist you in this regard.
What happens to my Family Trust when I die?
The terms of the Trust Deed will generally set out who will have control of the Trust if you pass away, which may not be who you intend. Deciding who you wish to control your Trust if you pass away is an important estate planning consideration as the person who has control of a discretionary trust can usually distribute income and capital to themselves to the exclusion of others. The Trust Deed should be reviewed from an estate planning perspective to ensure that these provisions are adequate and appropriate for your circumstances.
Estate First Lawyers have a range of strategies available to ensure that the control of the trust passes to the right people on your death or incapacity.
What happens to my company when I die?
You can gift your shares in the company under your Will to your desired beneficiaries. Depending on the terms of the constitution, the beneficiaries may then exercise your voting rights as a member of the company. The company constitution should be reviewed from an estate planning perspective to ensure that these provisions are adequate and appropriate for your circumstances.
Estate First Lawyers have a range of strategies available to ensure that the control of the company passes in the manner that you intend on your death or incapacity.
I run a business through a Family Trust/Company structure. What issues do I need to consider?
You should think about who is suitable to carry on your business after your death. For example, if you have children, it may be that only one child is best placed to carry on your family business. Estate First Lawyers can assist you with passing on control of your business entity to that child while ensuring that appropriate adjustments are made for your other children, if appropriate. This will ensure that the child who obtains control of your business entity does not receive a ‘windfall’ at the expense of their siblings (unless of course you wanted them to).
If you run your business with a business partner (such as a third party), you may also wish to consider a shareholder’s agreement or buy/sell agreement as well as key person insurance. We can provide you with further advice in this regard.
What are the benefits of having a company act as Trustee of my Family Trust?
Appointing a company as Trustee of your Family Trust has a number of benefits. If the Trust is likely to be exposed to investment or business risk, having a corporate Trustee in place can offer better asset protection than if you were acting as a Trustee in your personal capacity. A corporate Trustee also helps to better distinguish the Trust assets from your personal assets which can be advantageous from an administration point of view.
Having a corporate Trustee also provides for better succession of your family Trust if you pass away, as you can leave your shares in the corporate Trustee to your desired beneficiaries and the actual ownership title of the Trust assets do not need to change.
We can advise you on whether a corporate Trustee is right for your circumstances and can assist you with incorporating a Trustee company and changing the Trustee of your Family Trust if required.
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