Legal Tip 209: Trusts for Unborn Beneficiaries?

Discussion in 'Wills & Estate Planning' started by Terry_w, 8th Jun, 2019.

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  1. Terry_w

    Terry_w Well-Known Member Business Member

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    For a trust to exist there must be at least one beneficiary, but there is no legal requirement that the beneficiary must be alive at the date the trust is created (as long as there are one or more other beneficiaries that are alive).

    People not yet in existence can be beneficiaries by their relationship to someone else.


    Example

    Homer may set up a trust under his will for his children and grandchildren. His children are the Primary Beneficiaries, they are named or better yet, not named but listed by Homer as “my children” – just in case he has more kids after making the will. The Secondary Beneficiaries would include ‘my grandchildren’

    Homer dies with all of his children being about 12 years old or less with no grandchildren, but 20 years later when Homer’s son Bart has a son, that son will automatically be a beneficiary of the trust set up 20 years earlier because he is a grandson of Homer.


    This has important estate planning and tax consequences as the grandchildren could be earning $20k per year and not paying any tax.
     
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  2. money

    money Well-Known Member

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    Would it really make a difference if it's listed as "my children" instead of naming Bart as a named beneficiary? Wouldn't the trust deed usually have a standard clause of unnamed beneficiaries that covers any brothers or sisters that Bart has now or in the future?
     
  3. Terry_w

    Terry_w Well-Known Member Business Member

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    Yes it would make a difference as
    a) if Bart is named, then he might be a primary beneficiary, rather than a secondary and this would slightly change the nature of the class as there will be a flow on effect. Depending on the deed primary beneficiaries may have different entitlements to secondary beneficiaries.
    b) some lenders may want a personal guarantees from every adult beneficiary named in the deed.
     
  4. money

    money Well-Known Member

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    Ok thanks for the clarification. There still needs to be one named beneficiary in the trust deed, correct? Or it's sufficient to have the named beneficiary written only as "My Children" in the trust deed?
     
  5. Terry_w

    Terry_w Well-Known Member Business Member

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    I think it would be hard to not have anyone named in a trust as their needs to be a reference point. If you say 'my children' then who is the 'my'?

    In a will trust it is easier as the deceased is the settlor.

    Is suppose you could have something like 'children of the appointor' but an appointor changing would completely change the composition of the beneficiaries so you would need to consider whether this could cause a resettlement.
     
  6. Cam_Furness

    Cam_Furness New Member

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    Is it possible to extend this further to include 'my great grandchildren'?
     
  7. Terry_w

    Terry_w Well-Known Member Business Member

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    Yes and their children too.
     
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  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Limits on a trust can occur if the trust is obliged to make a family trust election. This can define the family tree more narrowly under tax law than the deed contemplates as permitted. A FTE cant truly be revoked to fix defects later (except some minor issues) A FTE may be required when the trust has losses but for some trusts the key trigger is $5K+ of franking credits.

    A FTE would require a test individual to be nominated and a control test considered. While in theory a FTE can nominate a child of two days age it would be impossible for a trust to consider a minor in control. Choosing a test individual that low on the family tree may limit available beneficiaries. Remarriage etc can also impact trusts with a FTE.

    The tree demonstrates the impact - Note the tree also addresses trusts and companies etc with reference to a individual

    Family trusts - concessions