For many wealthy Australian families, the most valuable assets are not in the will at all. They sit in a discretionary family trust, a company or a self-managed super fund. You cannot leave a trust’s assets in your will. What you can leave, or what passes in other ways, is control. Whoever controls the trust after you die decides who benefits from it.
The levers of control
- The trustee holds the assets and makes distributions. If it is a company, control lies with its directors and the shareholders who appoint them. Those shares can pass under your will.
- The appointor or principal can remove and replace the trustee. This is usually the ultimate power. The trust deed says who succeeds to it on death. Sometimes it passes to your executor, sometimes to named people, and sometimes the deed is silent.
- A guardian or protector, in some deeds, whose consent is needed for key decisions.
- The vesting date, when the trust must end and its assets be distributed.
What goes wrong
- The deed passes the appointor role to the “legal personal representative”. The founder’s will appoints one child as executor, who then controls a trust worth more than the rest of the estate combined.
- Two children become joint appointors, cannot agree, and the trust is paralysed.
- The corporate trustee’s only director dies and nobody has authority to act until probate.
- Self-managed super. After death, the surviving member or the executor may control the fund and decide who receives the death benefit, sometimes in their own favour. Australian courts have heard a number of these disputes.
Getting it right
- Read the trust deed and the company constitution with the will, not separately.
- Decide who should control each structure, and make the deed, the company and the will say the same thing. Use a deed of variation if needed.
- Appoint alternate directors and successor appointors, and consider an independent or professional appointor where the family is divided.
- For SMSFs, use binding death benefit nominations that the fund deed permits, and think about who will be trustee when you are gone.
Frequently asked questions
Can I leave my family trust’s assets in my will?
No. The assets of a discretionary family trust are held by the trustee, not by you, so your will cannot give them away. What you can pass on is control. Shares in a corporate trustee can pass under your will, and the trust deed decides who succeeds to roles such as appointor. Reading the deed together with your will is the only way to know who will control the trust after you die.
Who controls a family trust after the founder dies?
Generally the person who holds the appointor or principal role, because that person can remove and replace the trustee. The trust deed sets out who succeeds to that role on death: sometimes the executor, sometimes named people, and sometimes the deed is silent. The directors and shareholders of a corporate trustee also matter, so control depends on the deed, the company constitution and the will together.
What happens to a self-managed super fund when a member dies?
Control of the fund may pass to the surviving member or to the deceased member’s executor, who may then decide who receives the death benefit, sometimes in their own favour. Disputes of this kind have come before Australian courts. A binding death benefit nomination, where the fund deed permits it, and a clear plan for who will be trustee reduce that risk.
How can a family avoid deadlock over control of a trust?
Plan the succession of each role in advance, so the trust deed, the company and the will all say the same thing, using a deed of variation if needed. Appointing alternate directors and successor appointors avoids gaps in authority. Where the family is divided, an independent or professional appointor can avoid two joint appointors who cannot agree and leave the trust paralysed.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal advice. Victorian law unless stated otherwise.
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