August 2019 | Jonathan Harris
In New South Wales, a family trust can exist for a period of 80 years before the trust fund must be distributed to the beneficiaries and the trust wound up. This is referred to by lawyers as the ‘perpetuity period’.
Although we all hope to live longer than the perpetuity period most of us do not establish a family trust in our 20s. So unless your trust is wound up during your lifetime it will continue in existence following your death.
This is generally what people want. Either for the trust fund to be distributed soon after their death or, for the trust fund to be distributed at a future date such as when the primary beneficiary has turned 25.
Therefore, it is important that you make a plan for the future management of your family trust so that you can be certain it will be managed as you intend following your death.
What issues do I need to consider when planning for the future of my family trust?
a) Who is going to be the trustee/s of the trust?
Think carefully. The trustee makes all of the decisions relating to the management of the trust fund, the distribution of the trust fund to the beneficiaries and often has the power to change the terms of the trust itself.
If the trustee is a company, who will be the directors of the company on your death?
Is it appropriate to appoint an independent trustee who has no interest in the trust fund? Should the independent trustee be a professional or someone who has a close relationship with the beneficiaries?
b) Who is going to hold the power of appointment and removal of trustees?
This power is arguably the most important trust power. Given that the Appointor has the power to appoint and remove the trustee/s, the Appointor is the one with ‘ultimate control’ over the trust.
You might want to remove the power of appointment on your death. This means that the people you choose to be the trustees on your death cannot be later removed as trustees.
c) When and how do I want the trust fund distributed to beneficiaries?
This decision can be more complicated than it seems and the answer will be unique to the circumstances of your family.
Do you want the trust wound up upon your death or to continue in operation?
Do you want to protect the capital of the trust fund for your children but allow a spouse to benefit from the income earned on the invested capital for the remainder of their life? What happens when the kids and the spouse don’t see eye to eye? How can their conflicting interests as beneficiaries be protected?
We have posed many questions without providing any answers. This is because there is no “one-size-fits-all” plan for the future management of a trust. Each person’s plan is unique to them and their family. The important thing is that you begin thinking about the future of your family trust and put a plan in place while you still can.
Call us today on 9231 2466 for expert estate planning advice or email Director, Jonathan Harris at jharris@hflawyers.com.au
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