legal Tip 23: Why Set up a testamentary trust

If certainly does help, especially now that the laws have changed for CGT in relation to property. Also helps avid triggering CGT at death with shares.

 

How does this work if you want the ability to borrow from the trust at 0% in one scenario, but for another scenario would like to borrow at market rate? Can it be drafted under the deed?

Giving the trustee an ability to lend to any beneficiary at 0% interest or at the current market rate, subject to the choice of the beneficiary

 

The trustee can only lend if it has the power to do so. The will should give the trustees the power to do what you want it to do.

 

I think this makes sense. So essentially give a trustee the ability to lend to any beneficiary on any terms outlined by the appointer

 

Not always. Depends who it can lend to. You wouldnt want a independent trustee who can lend to a associate company (wifes company) and deprive a TT beneficiary. Yes its breach of trust but if the deed was broadly worded there may be poor recourse for a beneficary.

 

But if say a parent left each of their children 1 TT each, and the child is both the trustee and appointer, with beneficiaries being themselves and direct bloodline descendants, the appointer could change the trustee? To say a company before the assets are transferred.
Then as long as the trustee has the ability to lend to any beneficiary on any terms outlined by the appointer (child). The lending would mainly be to themselves via the company or to their children at any terms or interest rate the appointer wishes

 

Yes it could be like that, but usually the appointor won't decide. It is the trustee that makes the loan and decides who to lend to. The will could make certain decisions subject to the agreement of someone else such as the appointor, but the appointor has no legal power over the trust assets.

 

Is there any benefit other than cost to have the named beneficiary as trustee at all, as opposed to using a corporate trustee from day one? Considering the confusion of the individual owning assets and dealing with themselves in different capacities?

 

Imagine setting up a company now to act as trustee and then dying 20 years later...

 

But if you can change trustees later, then does the company need to exist at time of death? Or can it be incorporated after death but before distribution from the estate?

 

What about something like this?

Upon the passing of the Testator, the Primary Beneficiary, as the Appointer, shall have the power to change the trustee of the Trust. The Appointer may exercise this power by appointing a corporate trustee, such as a company, to act as the trustee of the Trust. Once the new trustee (company) is appointed, the Trust's assets shall be transferred to the new trustee in accordance with the instructions provided by the Appointer.

 

No idea what that has to do with whether a trustee company needs to exist at time of death.

 

Don't have that answer but why would you need to ask if you can do something like this?

 

There is no requirement that a trustee must be in existence at the establishment of the trustee, except for the first trustee naturally! Unless the deed states otherwise.


Testamentary trusts are not deeds, but wills, and are not established at death, but at a later point when the executor has administered the estate or made the trustee presently entitled to the asset. So a company could be set up before the trust is established and it act as trustee. Or it could be set up say 10 years after the trust has been established and operating. The exception be if the will said otherwise – which I have never seen.

 

Most trusts with appointors would allow that

 

The LPR etc could address this at the time of death and also the issue of minors who may not have capacity etc so there is no single best approach. It would be very unusual not to seek and have some legal advice and guidance at that time of will preparation and also upon death. A company trustee infers all beneficiaries are 18+ and also will be equally able to influence decisions. Not always wise. Appointor/s etc can address that at time. A TT will should really never be drafted as DIY or a cheapo online document. eg Can a guardian be paid or use funds for beneficiary ? What costs can be paid ?

 

I disagree.

 

Why does company trustee assume all beneficiaries are over 18? Isn’t it dependent on who the directors (and shareholders) are? Considering the beneficiaries would be a class and some yet to be born.

 

A Trustee Director is merely a right ?. The will and TT may create that right but its not assumed. A will cant say who a Director is but it can empower beneficiaries to become trustee directors at a time. But it doesnt say they must or that they will know. This is for control. eg Two child beneficiaries. The Trustee (Co) Director must be someone else. eg LPR may act until they attain relevant age. Is that 25 ? Terms of will should indicate. eg When each attains age 25, when youngest beneficiary attains age 25, Age 29. Then there can also be independent safeguards like guardians in trust terms. No trustee may alter / amend beneficiaries until beneficiaries attain age 29 AND with consent of the guardian (Guardian is a independent eperson eg Aunt Flo who understands her role is to protect trust so kids benefit).. So the company directors always need Flo's consent to certain acts - Like vesting. LPR is Uncle Fester. Flo says no way.

Even the big names get it wrong. Look at the issues with the Reinhart fortune. Mum made decisions and changes which harmed kids. Ignored some of the trust rules. vested a trust before its approaching perpetuity date when inheritance would have vested according to will of Lang and then migrated assets to a new trust and kids didnt even know. There was a guardian to protect benefcial interests - a solicitor who is also being sued. And the law firm who assisted.

 

I don't know what that all means or how it is connected to this thread or the question on trustees.