What happens to your family trust after you die?

Many families use discretionary family trusts to preserve their wealth and protect their assets.

But while most people are diligent in updating their Wills when circumstances change, they often overlook updating existing family trusts, assuming this will be dealt with as part of their estate plan.

However, trust assets are not personal assets. They are trust assets. And so they do not automatically form part of your estate when you die. Trusts can continue for up to 80 years from the date of creation and may be unaffected by a person's passing.

What happens to my family trust after I die?

So, what exactly does this mean? It means family trusts are not dealt with under your Will nor do they cease to exist when you die. Instead, after you die, control of the trust usually falls to the following people:

• the Appointor (who has the power to remove and replace the trustee);
• the Trustee (who has the power to manage the trust and make decisions regarding distributions); and
• the Guardian or Principal (who has the power to oversee key decisions).

Together, these positions will determine who holds ultimate control of the Trust and provides important checks and balances as to how a Trustee performs their duties. Who you appoint to these roles, should be carefully considered.

Many trusts are established years or decades before a person passes and if not reviewed and modified may be entirely inappropriate by the time a person passes away.

What happens if this is not considered and managed properly?

Without proper consideration and clear succession arrangements, even a well-structured trust can fall into the wrong hands resulting in family conflict and unintended consequences.

Unless properly considered as part of a person's estate planning, the assets of a deceased may remain for the benefit of a wide range of potential beneficiaries and may be managed and controlled by people other than those to whom a deceased intends assets to pass.

How can I avoid a dispute arising?

Disputes over control of a trust can be expensive and may undermine the purpose of creating the trust in the first place.

So, what's the best way to prevent a potential dispute? First, you should make sure the trust deed is aligned with your personal objectives and that provision is made to appoint appropriate substitute persons, selected by you.

To achieve this, the trust deed should be carefully reviewed by a lawyer to identify:

• whether the deed successfully defines each role;
• that the definitions are up to date in accordance with legislative requirements;
• that the appropriate variation powers are present;
• how various powers of management and control are allocated;
• whether the range of beneficiaries should be narrowed.
• that successors to the trustee, appointors and guardians are the people of your choice.

As well as appointing the appropriate people to positions of control and management we recommend considering clear and narrow direction as to who the beneficiaries should be.

The risk of not turning your mind to these potential issues, is that your trust assets may not be dealt with in accordance with your estate planning wishes when you die.

So, what should I do now?

To protect yourself and your family from future conflict, and to give proper effect to your intentions. your trusts should be reviewed by a lawyer who understands trusts, estate planning and stamp duty. It's also important to consider whether you need advice from an accountant about tax.

The bottom line is your family trust will outlive you and could very easily lead to a costly family dispute after your death if not properly constituted and reviewed. By acting now, you can make sure the assets you control are dealt with as you intend.

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