Legal Tip 199: 8 strategies for ‘passing on’ a discretionary trust to multiple people

The biggest downfall with discretionary trusts is that the assets of the trust cannot be passed on via the will of the person that controls the trust. Furthermore, passing on the control of one trust to multiple people is also problematic and this is the case even if the new controllers will all be the children of the deceased controller.

I have written about this here:

Legal Tip 148: The Biggest Issue with Discretionary Trusts Legal Tip 148: The Biggest Issue with Discretionary Trusts

With this in mind, here is a list of some of the things that could be done:



a) Split the trust

One trust can be split into 2 trusts. There are potential CGT and duty issues though. Once split control Is easily separated.

b) Vest the trust

The trust could be ‘wound up’ and brought to an end with the assets distributed to the appropriate beneficiaries. Assets could then pass via the will of a beneficiary and into a Testamentary Discretionary Trust upon their death.

c) Pass control of the trustee company

If the trustee is a company passing the shares of the company on to the right persons will ensure they control the trust.

But as the company can be removed by the appointor, the next point should be included.

d) Appoint the next appointor

Read the deed and see how the next appointor can be appointed and set this up. The deed could be amended to make the exercise of power by joint appointors to be unanimous or by majority for example. Where the trust deed indicates that the last Appointor’s legal personal representative becomes the next appointor the trust deed should be amended to prevent this happening.

e) Make the Appointor a Company

A company as appointor can be easier to control. Its constitution can be tailored to your needs so that directors can only be certain persons. Shares of the company can be controlled too by their class, or by ownership. For example 2 separate trusts, perhaps Testamentary Discretionary Trusts can hold the shares and the terms of these trusts can control who controls the shares.

f) Incorporate a gift and borrow back trust

Existing trust assets could be tied up to another trust and control passed this way.

For example, a property held by one trust could be tied to a separate trust by having the first trust gift some money to the second trust and borrow it back with a mortgage securing the loan.

g) Start off with separate trusts

An easy method if done at the start of your investment journey, but it

Keep in mind that each of these has different consequences so both legal and tax advice should be sought.

h) Finish up with separate trusts

Where you control one trust with a certain amount of assets in, you could easily set up a second trust and then begin building this up to that when the time comes control each trust can be passed to different people

 

Thanks Terry, I like the idea of h).