The Biggest Issue with Discretionary Trusts: Succession on Death In my view, the biggest issue with discretionary trust is succession. Trust assets do not belong to any one beneficiary, or the person that controls the trust, as such they cannot be passed via a person’s will. People often say things like ‘my trust’ or ‘my property held in the trust’ – but this is not correct. If you have set up a trust you may control the trust, but this control is only temporary. The assets of the trust are not yours and you should not treat them as such. On the death of the person that controls the trustee company the shares of the company can pass via the will or the intestacy laws. I have yet to see a client who has specifically considered the importance of this. Whoever ends up with the shares will control the trust (until the appointor removes the company as trustee). It is also rare for people to consider the passing on of the appointor roles. Many trust deeds make the executor of the will as the next appointor – which could be the public trustee or a distant relative. If there is no will it could be anyone who applies for administration of the estate. Sometimes clients have considered this and have the spouse as the backup backup appointor. But they rarely consider the next step – what if both die together. Or what would happen when the spouse eventually dies? Any relative who gets into the position of Appointor would also probably be a beneficiary of the trust. That means they can take control of the trustee position and then distribute all income and all capital of the trust to themselves (subject to the terms of the trust). Often the hope is that the children will control the appointor position. Assuming the position can be passed to them this can still pose problems if there is more than 1 child. What could happen if there are 2 (adult) children who are both appointors and there is a disagreement? A Mexican standoff could happen. Is it possible that one child could dominate the other, and effectively control the trust. Could one take control of the trustee position and benefit themselves at the expense of their sibling? What if there are 3 children – 2 could gang up on the third perhaps. What if there is a blended family. Brady bunch style. Mike dies leaving Carol in control of the trust – would she cause his children (who are not hers) to benefit? What if both Mike and Carol die and the children take control – 3 from each side, even, and then one of them dies. Arguments or disputes can arise for any reason: - Whether to sell trust property - Whether to access equity - Whether to distribute income unevenly - Whether to wind up the trust - Whether the benefits of one beneficiary should go to their children on their death An example of the last point – Brady Bunch with the mum and dad dead. The 6 children control the trust and distribute all income evenly 1/6th each. Greg dies. Does his notional share of the income of the trust go to his children or do the other 5 Brady Bunch members now split the income of the trust 1/5ths each? This sort of thing cannot be built into the trust deed as if it was it would no longer be discretionary. Many things to consider.