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23 October 2023

It Depends – Family trust change of trustee (part 5 – estate planning)

Changing the trustee of your family trust can trigger a range of issues – so many, in fact, that partner Scott Hay-Bartlem has produced a series of six ‘It Depends’ videos to cover the tricks and traps for advisers and their clients.

Changing the trustee of your family trust can trigger a range of issues – so many, in fact, that partner Scott Hay-Bartlem has produced a series of six ‘It Depends’ videos to cover the tricks and traps for advisers and their clients.

In the fifth video in the series, Scott talks about estate planning implications of changing the trustee of your family trust.

Video transcript

Welcome to this edition of It depends, which is another one in our series of ‘Should I change the trustee of my family trust?’

Should I change the trustee of my family trust?

We’ll start with the ‘It depends’. In this edition, we’re going to think about the estate planning implications of changing the trustee of my family trust.

Why is estate planning and family trusts important?

So, when you have a family trust, it’s really important to think about what happens to that trust if something happens to you. Because assets in a family trust don’t go under your Will. The family trust will keep on going and we need to deal with passing control of that trust. Now, if you’re owed money from the family trust, that’s an asset that will pass. But the actual assets in the trust won’t. So, control of the family trust is really important.

How does control of a family trust pass?

So, when someone dies, the control of the family trust is at several different levels. One is the appointor or principal, who has the power to change the trustee. The second one is going to be who the trustee is. So, if you’ve got multiple people as trustee and one dies, that will have the other remaining trustee being able to make decisions without that person there. So, where you have a company as trustee, then we have to look at how the directors are replaced or appointed, and that’s up to the company constitution. It might be the shareholders do the appointing. It might be the directors do the appointing. But we need to make sure we’ve planned so that we can have new directors appointed as we intend. So, what this means is a couple of things. Number one, you need to be careful as part of your estate planning to make sure that control of the trust passes in the correct way for your circumstances based on the deed and how everything is structured. If you’ve then gone to make all that work and you change the trustee, you should revisit those estate planning arrangements to make sure you haven’t messed up control of the trustee when someone dies.

For example?

So, to give you an example, if I have a company as trustee of my family trust and I’ve organised for special control mechanisms, for example, if something happens to me, my son can appoint himself as a director of that trustee company using special provisions in the constitution. That’s great. If I then decide to have a different company as trustee of my family trust and I don’t take those special control mechanisms into the new company’s constitution, the controls are not going to work, as I intend. So, it’s really important to make sure you’re keeping consistency in that control for estate planning purposes. If that’s what you intend. Now, there’s lots of other things to consider as part of changing the trustee of your family trust. And we’ve done some other ‘It depends’ on that. Have a look at those as well. Thanks for watching this edition of It depends.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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Scott Hay-Bartlem
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