Who Controls the Family Trust When You Die?

Many people take comfort in knowing they have an up-to-date Will.

But for families who have built wealth through trusts, companies and business structures, there is another question that can be just as important:

If something happened to you tomorrow, who would actually take control?

And there is an equally important follow-up question:

What happens if the person you expected to take control isn't there either?

Consider a husband and wife who control the family trust and have nominated their eldest child as the person they expect to take over one day.

• What happens if both parents die together?

• What if the eldest child is involved in the same accident?

• What if that child is alive but incapacitated, bankrupt, going through a relationship breakdown or isn't the right person to control the family's wealth?

For many business owners, farming families, and investors, a significant portion of family wealth sits inside discretionary trusts rather than being owned personally.

That means having an up-to-date Will, while important, may only be part of the succession plan.

Your Will Doesn't Control Trust Assets

One of the most common misconceptions we see is the belief that assets held in a family trust can be left to children through a Will.

Generally, that's not how a discretionary trust works.

The trust assets are held by the trustee on behalf of the trust. Because those assets are not personally owned by you, they typically do not form part of your estate.

As a result, your Will may not determine who ultimately controls or benefits from those assets.

Who controls the trust after you're gone?

Control Is What Really Matters

When reviewing a family trust, we are often just as concerned about who controls future decisions as we are about who receives distributions today.

Depending on the trust structure, that control may involve:

• The appointor or principal who has the power to appoint and remove trustees;

• The directors of a corporate trustee;

• The shareholders of the trustee company;

• Successor appointors named within the trust deed; or

• Other succession provisions are contained in the deed.

• Every trust deed is different.

That's why it's dangerous to assume control will automatically pass to your spouse or children simply because your Will says so.

Don't Just Nominate One Successor

This is where many succession plans can fall short.

It is relatively easy to decide who you would like to take control next.

But what happens if that person dies before you, dies with you, loses capacity or is otherwise unable or unsuitable to act?

A proper succession review should therefore consider a line of succession, rather than relying entirely on one person.

For example:

Who is your first choice?

Who takes over if they cannot act?

And is there another appropriate alternative after that?

For family trusts, this may require reviewing appointor succession, the corporate trustee, ownership of trustee company shares and the specific provisions of the trust deed.

The objective is to avoid a situation where the family has a perfectly good structure today but no workable mechanism for determining who controls it tomorrow.

A Farming Family Example

Consider John and Mary, who have operated their cattle property for more than 30 years.

Their family trust owns investments and operates part of the family's business. A company acts as trustee, with John and Mary serving as directors.

They have two adult children. One child has worked in the farming business for years, while the other has pursued a career elsewhere.

John and Mary recently updated their Wills and believe their succession planning is complete.

However, nobody has reviewed the family trust deed for decades.

Questions immediately arise:

Who becomes appointor when John and Mary pass away?

Who inherits or controls the trustee company shares?

Who becomes director of the trustee company?

Does control pass equally to both children?

Was that the outcome John and Mary intended?

What happens if the child intended to take control dies or loses capacity before John and Mary?

That final question is easily overlooked.

It isn't enough to decide who should take control next. A good succession plan should also consider who comes after them.

Corporate Trustees Add Another Layer

Where a company acts as trustee, there is another layer of succession planning that can easily be overlooked.

It's important to understand:

• Who owns the trustee company shares;

• What happens to those shares on death;

• Who will control the appointment of directors;

• Who will make decisions after the current controllers pass away; and

• What happens if the intended successor cannot act.

• Without proper planning, a carefully prepared Will can sit alongside a trust and company structure that produces a very different outcome from the one intended.

Death Isn't the Only Risk

Succession planning also needs to consider incapacity.

An accident, serious illness or loss of decision-making capacity can create control problems well before anyone dies.

Your Will only operates after death.

That means your broader estate and succession arrangements should also consider who can make decisions and exercise relevant rights while you are alive but unable to act yourself.

For families with trusts, companies, businesses and significant investments, death and incapacity should therefore be considered together rather than as completely separate planning exercises.

Put Your Structure Through the "Tomorrow Morning" Test

One practical way to identify gaps is to ask:

If something happened to us tonight, could the right people take control tomorrow morning?

For your family trust:

• Who becomes the appointor?

• Who controls the corporate trustee?

• Who controls the trustee company shares?

• Can the appropriate people actually make decisions?

• Do the trust deed, company documents and Will work together?

• What happens if our first-choice successor cannot act?

• For a farming family or business owner, the same exercise should extend to the broader business.

Who can deal with employees? Who can speak to the bank? Who can make urgent business decisions? Who knows where the important documents are?

These practical questions can expose succession gaps that aren't obvious from looking at a Will alone.

Don't Leave It Too Late

Trust succession planning should be reviewed long before retirement, illness, or incapacity becomes an issue.

It's particularly important where

• Significant wealth is held through family trusts;

• Only some children are involved in the family business or farm;

• There are children from previous relationships;

• Multiple trusts or companies exist;

• Parents are approaching retirement;

• One individual currently controls the structure; or

• The trust deed has not been reviewed for many years.

The objective is not simply deciding who gets what.

It is determining:

Who controls what, and who takes control if that person can't?

When Did You Last Review Your Trust Structure?

Many family trusts have been operating for 10, 20 or even 30 years without anyone reviewing whether the succession provisions still align with the family's circumstances.

During that time, children grow up, businesses expand, relationships change and retirement approaches.

If you want to chat about your situation or have any questions, we are here to help.

Book a meeting

Nijo Antony

Director