A Family Trust can be an effective long-term solution for safeguarding assets, managing investments, and minimising taxes. But what happens when control of the Trust passes to someone else after you’re gone? Will your intentions be honoured? Who will receive the assets, and what share will your children get? Addressing these questions is essential for effective estate planning to secure your legacy.
Start by engaging a legal advisor to review the Trust Deed very carefully. Without careful planning, unintended beneficiaries—such as a new spouse, an ex-spouse, or even a family member with questionable intentions—could exploit the Trust’s terms to benefit themselves, potentially to the detriment of other family members.
Choosing Your Executor and Trust Controller
Your selection of an Executor and Trust Controller (Appointor, Principal, or Guardian) is the key to ensuring decisions will be made according to your wishes. It’s important to provide clear, specific instructions for distributing income and capital fairly among family members. Excluding individuals who should not benefit can also be wise. If the decision-making power isn’t in the right hands, disputes are likely to arise, and can lead to costly legal battles that can diminish the estate for all beneficiaries.
10 Strategies to Avoid Disputes over Your Family Trust:
1. Obtain proper Legal and Accounting Advice
Ensure a professional review of the Trust terms to identify any potential areas that could lead to future claims or disputes.
2. Examine the Trust Deed in Detail
The wording in Trust Deeds can vary. Pay close attention to the controller of the Trust, as this individual has the power to appoint or remove Trustees and approve amendments to the Deed.
3. Opt for Custom Solutions over Off-the-Shelf Trusts.
Never assume the standard off-the-shelf Trusts will meet your unique family circumstances or intentions. Involve your legal, accounting, financial and business advisors, to ensure all aspects of the succession plan are addressed comprehensively and documented with care.
4. Choose Alternative Trustees Thoughtfully.
A Trustee is the person appointed by the Will to administer your estate, and perhaps by default, can wield substantial control over the Family Trust. They may even amend the Trust deed to remove beneficiaries, which could contradict your original intent. Recent cases have shown very wide powers are held by a Trustee which, subject to the Trust Deed, are far beyond what the original parent intended for the wider family members. Your chosen Trustee should be independent and committed to upholding your wishes, as set out in your Will.
5. Plan for Trustee Succession.
If your chosen Trustee becomes unwilling or unable to serve, the Trust Deed should provide for a suitable replacement, ensuring the continued balance of power.
6. Address Problematic Beneficiaries.
Family members struggling with financial or personal issues, like addiction, may need to be specifically excluded from consideration before making distributions of capital or income from the Trust.
7. Avoid False Promises.
Broken promises can lead to disputes and claims of unconscionable conduct, especially if someone forgoes wages or remains tied to family assets, for example by staying on a family property or working in a family business. Good planning encourages family meetings to ensure everybody is well informed and aware of the next stages of change.
8. Accurately Document Distributions.
Ensure all Trust distributions are documented accurately, technically well and at the right time. Failure to do so could cause tax liabilities.
9. Understand the Trust’s Termination Date.
Make sure to read the Deed and know exactly when it is going to end and when the capital distributions must be made. (meaning when the cash, shares, managed funds, and property are given to the default beneficiaries as named in the Deed). This could create tax liabilities and leave assets open to attack if the end date has passed.
10. Establish a Family Constitution or Succession Agreement.
Draft a family constitution, statement of principles or succession agreement between all family members, to assist the Trustee in making decisions about estate and Trust distributions.
Remember, good planning leads to better outcomes and peace of mind. Don’t leave it until it’s too late. Ask us how we can help you develop a structured estate plan that ensures your assets are distributed in line with your vision, particularly with regard to your Family Trust.
If you would like advice on your Family Trust, please call us now on 07 3839 7555 or email [email protected]