Following on from my post on SMSFs and death I would like to point out what happens to 'your' trusts when you die.
A trust is not a legal person or entity but a relatonship between the trustee, the property and the beneficiaries. A trustee owns the property for the beneficiary.
If a trustee dies
A trustee holds property for others. If a trustee were to die this property doesn't pass into their estate because the property doesn't belong to the trustee. The trustee will keep going and a new trustee will come in. Who and how this trustee will be appointed will depend on the terms of the deed. Often, or maybe usually, the next trustee will be nominated by the appointor.
If appointor dies
What if you are the appointor and the trustee and you die? Again you need to read the deed to see what happens. In some deeds the next appointor is spelled out. It is always good to have a backup appointor.
In others it is the person nominated in the will of the last appointor - so make sure you do nominate a successor appointor in the will.
In other trust deeds it could be the legal personal representative of the last appoint. This is the executor or administrator of the estate. This is unwise or even dangerous. Imagine you die and nominate uncle Harry as executor - Harry dies before you, or has dementia, or just isn't capable and cannot do it. In these cases it is often the public trustee or a private commercial trustee company that is appointed. They will essentially be the appointor of your trust, complete strangers.. The Appointor has the control to appoint the trustee so the stranger will be in control of the trustee postion and the trustee controls the trust and who will receive income from it. They will be taking fees for every phone call too. In a NSW Supreme Court case from a few years ago there was a dispute over a Dr dying and willing her trust assets (mistakenly) to a charity. The executor of the estate was a professional trustee and from the judgment you can see one of the first things they did was take over the appointor position and sack the existing company trustee and replace it with a company they controlled.
Also if an executor dies mid way through administering an estate it could be their legal personal representative that takes over their role and therefore you trust.
Death of a beneficiary
Noting much happens if a beneficiary dies. The trustee will simply stop distributing to that person. But there may be estate planning opportunites here with increasing assets into a testamentary trust and thereby tax free income to children - see your tax advisor about this.
Death of a director of a trustee
Trustee company is controlled by a director. If director dies control of the company passes to new director(s). This may be good or bad depending. If A dies and Z takes control of the company and B takes control of the Appointor postion it is possible that Z can make a resolution to distribute all the trust assets to himself or his family. B could sack the company as trustee, but this could take time. When someone dies changing trustees is often not thought about straight away.
Death of shareholder of trustee company
Shareholders essentially control who the directors are. Make sure you plan who you leave your shares to as they will vote to replace or appoint a new director and thereby control the company which controls the trust - very important in SMSF too.
Death of a unit holder
Units in a unit trust are property. If they are owned by a person individually then they can be left in a will. If a discretioanry trust owns the shares they remain in the trust when the person behind the trust dies
I see a lot of clients with existing trusts already set up. Probably less than 10% know who the next appointor is. Everyone thinks trusts are good for asset protection, but they often forget about asset protection upon death.
Having assets in a trust can provide protection from the will being challenged. If the will is not valid - not witnessed, no capacity etc then this generally won't affect the trust assets. If the will is challenged by a family provision claim (ie leaving someone out of a will and/or not providing adequate provision) the trust assets could be safer too, but in NSW there are provisions where the assets could be attacked - via a notional estate order.
A trust is not a legal person or entity but a relatonship between the trustee, the property and the beneficiaries. A trustee owns the property for the beneficiary.
If a trustee dies
A trustee holds property for others. If a trustee were to die this property doesn't pass into their estate because the property doesn't belong to the trustee. The trustee will keep going and a new trustee will come in. Who and how this trustee will be appointed will depend on the terms of the deed. Often, or maybe usually, the next trustee will be nominated by the appointor.
If appointor dies
What if you are the appointor and the trustee and you die? Again you need to read the deed to see what happens. In some deeds the next appointor is spelled out. It is always good to have a backup appointor.
In others it is the person nominated in the will of the last appointor - so make sure you do nominate a successor appointor in the will.
In other trust deeds it could be the legal personal representative of the last appoint. This is the executor or administrator of the estate. This is unwise or even dangerous. Imagine you die and nominate uncle Harry as executor - Harry dies before you, or has dementia, or just isn't capable and cannot do it. In these cases it is often the public trustee or a private commercial trustee company that is appointed. They will essentially be the appointor of your trust, complete strangers.. The Appointor has the control to appoint the trustee so the stranger will be in control of the trustee postion and the trustee controls the trust and who will receive income from it. They will be taking fees for every phone call too. In a NSW Supreme Court case from a few years ago there was a dispute over a Dr dying and willing her trust assets (mistakenly) to a charity. The executor of the estate was a professional trustee and from the judgment you can see one of the first things they did was take over the appointor position and sack the existing company trustee and replace it with a company they controlled.
Also if an executor dies mid way through administering an estate it could be their legal personal representative that takes over their role and therefore you trust.
Death of a beneficiary
Noting much happens if a beneficiary dies. The trustee will simply stop distributing to that person. But there may be estate planning opportunites here with increasing assets into a testamentary trust and thereby tax free income to children - see your tax advisor about this.
Death of a director of a trustee
Trustee company is controlled by a director. If director dies control of the company passes to new director(s). This may be good or bad depending. If A dies and Z takes control of the company and B takes control of the Appointor postion it is possible that Z can make a resolution to distribute all the trust assets to himself or his family. B could sack the company as trustee, but this could take time. When someone dies changing trustees is often not thought about straight away.
Death of shareholder of trustee company
Shareholders essentially control who the directors are. Make sure you plan who you leave your shares to as they will vote to replace or appoint a new director and thereby control the company which controls the trust - very important in SMSF too.
Death of a unit holder
Units in a unit trust are property. If they are owned by a person individually then they can be left in a will. If a discretioanry trust owns the shares they remain in the trust when the person behind the trust dies
I see a lot of clients with existing trusts already set up. Probably less than 10% know who the next appointor is. Everyone thinks trusts are good for asset protection, but they often forget about asset protection upon death.
Having assets in a trust can provide protection from the will being challenged. If the will is not valid - not witnessed, no capacity etc then this generally won't affect the trust assets. If the will is challenged by a family provision claim (ie leaving someone out of a will and/or not providing adequate provision) the trust assets could be safer too, but in NSW there are provisions where the assets could be attacked - via a notional estate order.
