Legal Tip 58: Death of a trustee

Discussion in 'Wills & Estate Planning' started by Terry_w, 15th Aug, 2015.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Death of a trustee


    What happens if Mr X is the trustee of a discretionary trust and X dies?


    The assets of the trust which are in the name of X do not pass via his will, but remain in the trust. The trust doesn’t die but will keep going on under a new trustee. The deed governing the trust will hopefully have a mechanism for someone to appoint a new trustee. This is usually the appointor, but often the sole trustee is the sole appointor and if they are the same person and that person dies then there are can complications.


    if this happens there should be a mechanism for a new appointor to come into play. This should ideally be nominated in the deed. The beneficiaries of the trust will hopefully dig a bit and find the deed and work out who the next appointor is.


    If there is no new appointor and the deed doesn’t appoint a new trustee then one or more of the beneficiaries of the trust may have to apply to the Supreme Court to appoint a trustee. The court has these powers under the trustee acts.

    This is one reason why it is better to have companies as trustees. Succession is easier and title deeds do not need to be changed when someone dies.

    Are you a trustee? If so who will be the next trustee on your death and how will this be achieved?
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    With corp trustee, if sole director is also sole shareholder, wouldn't that create the same issue upon his death?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Shares are property that can be passed via the will or intestacy laws. But there are other issues which I will write about - in the future
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  5. D.T.

    D.T. Specialist Property Manager Business Member

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    So shares pass to someone via a will, shareholders nominate new director, trust continues?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes, basically that is how it works. But don't forget some trusts, especially discretionary, have appointors who could remove the trustee and put a new one in place.
     
  7. LaoBan

    LaoBan Well-Known Member

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    Hi @Terry_w ,

    My proposed DT uses corp trustee (which also the bucket company), with me and wife as directors.
    The shareholders of this company are myself (ord), wife (class A) and child (class B).
    The DT appointor is me.

    My wife and I have wills, and in each of our wills, it mentions about the creation of testamentary trust upon our death.

    My questions are:
    1. Who should I put as default beneficiaries of the DT?
    Should I put only myself and wife, then in the trust dead mentions anyone who is related to us biologically, which will include my child?
    Or, should I include my child as default beneficiary in addition to me and wife?
    Any pros and cons?

    2. From my understanding, the trust assets / interest in a DT is not part of estate when I die.
    Is it possible and advisable to include our testamentary trusts as one of the DT beneficiaries in the trust deed, so that the DT assets will be part of the testamentary trust and the will can govern it?

    3. If my wife and I both die, and my child survives, does she automatically become the director of the corp trustee because she will be the sole shareholder hence hold majority (and can appoint herself to be the company director)?
    My child is primary school age so if wife and I both pass tomorrow, will she become the company director automatically (because otherwise she will have no clue about appointing herself as company director)?
    If so, then how will the trustee of the DT work since she will be too young to govern the trust and will have no idea at all?

    4. The DT appointor is me. I am thinking to specify in the trust deed to have my wife as successor if I die, then if she also dies, then my child will be the appointor.
    Is it a good idea?

    Thank you as always!
     
    Last edited: 25th Feb, 2022
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Why!

    This is something you should seek specific legal advice on.

    Yes, but whether it should distribute to a testamentary trust is a different matter

    No

    Definitely not. Children cannot be directors either

    impossible for anyone to say. If you want the control of the trust to pass in that manner it might be a good idea.
     
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  9. LaoBan

    LaoBan Well-Known Member

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    I was advised by my accountant that for my situation to keep it simple and save cost.
    Also advised not needing to have a separate DT as beneficiary of the bucket company as different share classes held by each shareholder will give same flexibility when it comes distributing income from bucket company.

    What cons can arise from having bucket company the same entity as the corp trustee of DT?

    I thought so too. I think I read somewhere in the constitution of the company, that the company share will be passed on to my LPR, which means my Will will govern it as part of my testamentary trust (?)
    What age can an individual become a company director?

    There is no harm in including an entity as beneficiary as the discretionary nature of the trust, is there? Only to enhance flexibility?
    If it's included in the deed but actually when the time comes and find out that it's not beneficial to distribute to testamentary trust, the DT trustee can simply choose not to distribute there, right?

    Thanks @Terry_w
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sounds like you are seeking legal advice from an accountant?