Strategies for Passing Control of Assets in a Family Trust

Estate and succession planning these days needs to go a little bit further than wills establishing testamentary trusts (that is trusts established on death under a will).  The reason for this is that many people’s affairs are more complicated as a result of controlling wealth rather than owning it, as well as having personal circumstances that do not reflect the traditional nuclear family.

Whilst wills remain a key feature, an estate and succession plan is ultimately about implementing your testamentary objectives in a manner where they can withstand an attack from a disgruntled beneficiary or the risks inherent in having new controllers with less maturity or business experience.

Below are some useful ideas that can be used to help achieve testamentary objectives where recording them in a will are simply not enough:

- Depending on the jurisdiction of assets already in trusts and the wording of trust deeds, cloning of trusts or converting them to unit trusts remain possibilities.

- Where corporates are involved, as a separate exercise to dealing with shareholdings it is becoming more commonplace to tailor constitutions in order to hardwire client objectives as part of the source documentation. In doing so, it is also important to ensure that any hardwiring is complimented by appropriate provisions in the trust deed (i.e. where the company acts as trustee), as well as ensuring that the powers of the appointor cannot undermine any fine tuning done to the trust deed or constitution.

- Powers of attorney continue to be important documents to protect the estate and preserve your wishes where you have has lost capacity. Their importance to a comprehensive estate plan is difficult to overstate, which is why they are often referred to as a ‘living will’.  It is important to appreciate that incapacity that is not dealt with specifically in a trust deed can hamstring efforts in dealing with an incapacitated trust controller.  A trust deed ought to specifically deal with this event and if it is the intention that attorneys appointed by an appointor under a power of attorney are to be the successor or replacement appointor, then a trust deed needs to specifically authorise that.

- In considering who ought to control a trust (whether inter vivos (that is trusts established during your lifetime) or testamentary) on the death of a matriarch or patriarch, it is becoming more common to consider the introduction of an independent person to act along with the selected family controllers either permanently as part of the decision making process or to assist an intended beneficiary on their path to maturity and business acumen, until such time as they can take all of the reigns. A very popular arrangement amongst effective succession planning is along the following lines:

  • an independent person is appointed to act as co- trustee (such as a long term trusted advisor to the will maker);
  • where the chosen independent cannot act and provision is made for a successor (who may be unknown) the intended family controllers have the power to jointly fire that independent person on the basis that another equally qualified trustee is appointed in their place under a process that preserves the independence of the role. This protects the estate from having someone who is unsuited to the role, continuing to act against the wishes of the surviving family, and
  • the intended beneficiary if a trustee, can have the day to day running of the trust so that, for example, a separate bank account may be opened with them as sole signatory, where income is deposited to it and can be accessed by them without recourse to anyone. However, in relation to decisions relating to vesting the trust, capital distributions, asset sales or decisions to encumber assets, the independent person is required to consent.

For a lot of families, this strikes a sensible balance between providing a backstop measure which prevents the trust fund being consumed prematurely and over regulating the intended beneficiaries.

These strategies should be considered by families in the context of the inheritance being the planting of a fruit tree and the estate and succession plan being the ring fencing to that tree whilst accommodating for appropriate access to it.  That access is usually about authorising intended beneficiaries to come and pick fruit from the tree or to take a branch, but not to authorise the felling of the tree in its entirety.

These are all very broad strategies to allow families to firm up their testamentary objectives in an effort to provide certainty of outcome for intended beneficiaries.  The list is not exhaustive but serves as a useful reminder that often preparing a vanilla testamentary trust is simply not enough to achieve these objectives.

As with all matters involving succession planning, care must be taken in drafting the terms of all constituent documents and appropriate legal advice should be sought to ensure that suitable mechanisms are considered for succession and control of family wealth.