Family Trust – Guardian & Appointor Update – includes succession planning
Guardian & Appointor update for Family Trust
You update and change the Guardians/Appointors for many reasons.
- You may wish to retire as an Appointor & Guardian.
- Perhaps you wish to add your spouse to be an Appointor with you.
- After you and your spouse die who is in control? Your children? Then make your children the Backup Appointors.
The Appointor & Guardian Update:
- removes Appointors & Guardians
- removes dead Appointors & Guardians
- confirms remaining Appointors & Guardians
- Allows for succession planning – Backup Appointors
Dead Appointors?
Example: Mum and Dad are the Appointors. Mum dies. Dad continues as the Appointor. Dad is happy to control the Family Trust by himself. Nothing in the Trust Deed or Mum’s Will states anything different. Therefore, all Dad is doing in the Appointor Update is formally removing Mum as Appointor. Mum’s executor or next of kin signs on Mum’s behalf. The Family Trust may have a system or procedure for dealing with dead Appointors.
Any Stamp Duty or CGT?
Stamp Duty is payable when assets are transferred from one person to another person. Capital Gains Tax is payable when you ‘dispose’ of an asset. However, by changing the Appointors you do neither. The class of beneficiaries remains the same. There is no change to the object or purpose of the Family Trust. There is generally no Stamp Duty or CGT payable in Australia.
Our letter of advice confirms that there are no ‘resettlement’ issues. The law firm’s letter of advice comes with every document you build on Legal Consolidated’s website. We are a law firm and we are responsible your for your document.
Trustee vs Appointor – which one controls the family trust?
Who is in charge? Is it the Trustee that ‘owns’ the assets? No, the Appointor is god. The Appointor bosses the Trustee. The Trustee looks like it is in control, as it has the assets in its name. However, the Trustee takes it marching orders from the Appointor.
The Appointor can sack the Trustee on a whim. This is for no reason at all. For example, the Trustee of your Family Trust has nothing to do with this Deed of Variation. The variation relates to the Appointors only. The Trustee is not even party to the Deed of Variation to:
- change an Appointor; and
- put succession planning in place. This is after the Appointors dies, goes bankrupt or loses mental capacity
Appointor, Guardian, Principal, Controller and other names for ‘god’
The wonderful thing about trusts is that they suffer very little meddling by the government. You are free to put into your trust deed pretty much anything you want. (That is why it is important to have a specialist law firm, like Legal Consolidated, prepare your trust deeds.)
There are two main persons in a Family Trust: ‘controller’ and the trustee. The ‘controller’ of the trust acts like a god. It can do whatever it wants. It ‘controls’ the trust. Depending on who prepared your Family Trust deed the ‘controller’ may be known by many different names.
Seven common names for a controller of a Family Trust
- Appointor
- Guardian
- Appointor and Guardian
- Appointor hires and fires the Trustee.
- While the Guardian tells the Trustee gets the income and capital to each year.
- Principal
- Governor
- Controller
- Trustee – uncommon, except for Deeds older than 1972.
Can the Appointor be BOTH mum and dad?
Yes, commonly mum and dad are Appointor together. But you can have as many Appointors as you wish.
You also have as many Backup Appointors as you wish. The Backup Appointors are often your children. And commonly the family trust for the Backup Appointors use this expression in the Family Trust Deed:
‘the union of Dad Full Name and Mum Full Name’.
Can the appointor be a company?
It is becoming more common to set up a company as a dedicated Appointor of a family trust.
So, for example:
- mum and dad remain as Appointors, in the first instance.
- The company is the Backup Appointor. Your children each hold the same number of shares in the company.
- When mum and dad die the company takes over the control of the Family Trust. The company is the new Appointor.
Obviously, the shareholders have ultimate control of the company, not the directors.
Commonly you would also have a Shareholders Agreement to lock in the rules. If the beneficiaries getting the shares are minors then the executor(s) in mum and dad’s Wills control the shares (and therefore the assets in the Family Trust). They can only act in the best interests of the minor children. (Whether you have a 3-Generation Trust Will the position is the same.)
Q: Does the company need to be set up in any specific way to act as the Appointor? Or is it a generic company?
All companies prepared by Legal Consolidated can be used as an Appointor of a Family Trust. However, you can not expose the company to anything that may make it insolvent. So you should not let the Appointor company operate a business. This is either in its own right or as a trustee. Because running a business is high risk. The company should serve no purpose other than be the Appointor (or future Appointor) of the Family Trust.
To labour the point, obviously the Appointor company should:
- NOT be trustee of the Family Trust.
- NOT be beneficiary (it should not be a bucket company)
The Appointor company should hold no positions. This is other than to be the Appointor (or Backup Appointor) of the Family Trust.
If you do not have a Legal Consolidated company, then check with the law firm that prepared that company. And get in writing whether it can be used as an Appointor. Or just update the Company Constitution.
Company as Trustee of Family Trust – Why have a family trust corporate trustee company?
Q: You mention “Commonly you would also have a Shareholders Agreement to lock in the rules.” – what do you mean by this? Can we also build this document on your website?
You can build the Shareholders Agreement here.
Succession planning in a family trust using a company as the Backup Appointor:
- incorporate a company.
- make your children the shareholders on the new company.
- build this Appointor Family Trust update:
- you and your spouse remain as Appointors.
- the new company is the Back-up Appointor.
Can I change the Backup Appointor at a later time?
The Appointor is god. Or rather the current Appointors are gods. The Backup Appointor is nothing. You can keep changing the Backup Appointor.
We talk about the Trustee of the Family Trust remaining in that capacity at the whim of the Appointor.
Similarly, the Backup Appointor can be changed at the whim of the Appointor. You just build another Appointor Family Trust Variation Deed.
Do the Backup Appointors of a Family Trust need to know when they are nominated or removed?
At law there is no requirement to tell the next controllers of the Family Trust who they are. But it common sense to let them know. And to educate and train them on how Family Trusts operate.
Otherwise upon your death (as the Appointor) it is a steep learning curve to have to deal with your death and the control of this strange vehicle called a Family Trust.
I get annoyed when well healed parents tell me that their children are not ‘money savvy’. Or they are only a housewife or butcher.
My dad was a butcher. During WW2 he was forced to leave his London school. He didn’t get much education pass year 7. But he was wonderful with money. He taught me the value of investing and running a business at a young age.
If your children are not ‘money savvy’ then you do something about it. You are the parents.
Should a Will, 3-Generation Testamentary Trust or Testamentary Trust ‘control’ my Family Trust?
A Will gives away what you own.
- But you do not “own” the assets in your Family Trust.
- You “control” the Family Trust because you are the Appointor.
The correct way to deal with the succession of the Appointor is to build a Deed of Variation.
It is wrong and foolish to allow your Will (or any trusts formed under your Will) to control the succession of your Family Trust. The only way that you should update or direct who is the controller of your family trust is via a Deed of Update. This is the document you are about to start building. Just press the blue-button above to start the process. Read the hints as you build the document.
Succession planning in a Family Trust
This is the cast of players in a Family Trust
- Trustee – usually a company if for asset protection
- Appointor/Guardian/Principal – usually Mum and Dad
- Backup Appointors – often all your children
- Default (Specified) Beneficiaries – usually the ‘children of Mum and Dad’
- General Beneficiaries – about 400,000 in a modern Australian family trust
So let’s have some of these players die:
- The Trustee dies. Or is ‘wound up’ if a corporate trustee. Nothing happens. The Appointor merely appoints a new trustee. The trustee is a puppet. It is replaced at the whim of the Appointor.
- Let’s now have some of the Default Beneficiaries and General Beneficiaries dies. Nothing happens. The Appointor merely instructs the Trustee to distribute income and capital to other beneficiaries. This is at the end of each financial year.
- Let us now have the Default Beneficiaries die. Nothing happens. The Appointor merrily, each financial year, instructs the Trustee to distribute income and capital to those beneficiaries that are on the lowest marginal tax rate. And then to a corporate beneficiary if the Appointor runs out of family members on low marginal tax rates.
- Well surely the climax to this story is the death of the Appointor. So let’s have the Appointors die. Nothing happens. The assets in the family trust just stay where they are. They cannot move. There is stamp duty and Capital Gains Tax if the assets in the family trust are moved. But god, the Appointor, is dead.
- All is lost? No.
- The Backup Appointors now start controlling the family trust.
Does a Will have a role in changing the control of a Family Trust?
- There is a misconception that the “Appointor” or controller of the family trust ‘owns‘ the family trust assets. This is untrue.
- Rather the Appointor/Guardian/Controller ‘controls‘ the Family Trust. And that is clever, tax effective and great for asset protection.
A Last Will and Testament should not have any control over a family trust. Badly drafted Wills may state:
“In the event of my death the Appointor of my Family Trust will be my executors”.
That is silly. It is wrong. A Will is a grubby little document. It can be challenged by many family members. Even with a Considered Person Clause the Will can still be challenged.
In contrast a Family Trust can only be challenged by your spouse or de facto.
So you should not let the Will contaminate the succession planning of a Family Trust. Rather you either:
- Do a complete update of the Family Trust – Appointor, Trustee & Deed Update; or
- Only update the Appointor/Guardian/Controller by pressing the above Blue button and start building a Deed of Variation to update the Appointor and Backup Appointor
My children are under 18 years of age, can I still make them backup Appointors?
After the Appointor or Appointors all die (or go bankrupt or lose mental capacity) your Back up Appointors take over. If you have one child and expect more children then commonly the backup Appointors are “Child One Full Name” and “Unborn Children”. But what happens if the Appointors all die and there is only under 18-year-olds as the Back-up Appointors? That is fine. Their position is protected until they turn 18. In the meantime, the minor’s legal personal representative (guardians) hold that position in trust for those minors. However, the Court may direct another person to take charge of the Appointor position. But at all times that person or persons must always act in the children’s best interests. The assets in the Family Trust are protected for the minors.
If my spouse and myself both go bankrupt or lose mental capacity we lose control to our Back-up Appointors. Do we get it back when we come out of bankruptcy or regain mental capacity?
No, you do not get control of the trust back. There are bankruptcy risks to set up the Appointors succession plan in that way. Choose your co-Appointors and Back-up Appointors carefully.
Appointor in the Family Trust goes bankrupt.
Does the Trustee in Bankruptcy now take control of the Family Trust?
The Appointor is god. What happens if the Appointor goes bankrupt (if a human) or insolvent (if a company)?
What if the trustee-in-bankruptcy gets control of the Family Trust’s Appointor position? The trustee-in-bankruptcy merely instructs the Trustee (puppet) to distribute 100% of the Family Trust assets to the bankrupt person. Then trustee-in-bankruptcy then gets all the Family Trust assets.
As the law currently stands the trustee-in-bankruptcy cannot get its hands on the Appointor position. This is the case even if the Appointor is bankrupt.
Nevertheless, the above doomsday scenario has been one of my fears. I think the laws will change. This is why with a Legal Consolidated:
- Family Trust Deed; and
- Family Trust update
the Appointor automatically loses his/its position as Appointor. This is if the Appointor goes bankrupt or insolvent.
We are a conservative taxation law firm. We do not leave anything to chance. We assume that future laws will change. That is to the detriment of our clients. We put asset protection into our Family Trust deeds.
Good news: the trustee in bankruptcy cannot take on the role of Appointor – Harris v Rothery
The current law is that the trustee-in-bankruptcy cannot stand in the shoes of the Appointor.
The case of Harris v Rothery [2013] NSWSC 1275 confirms that the trustee-in-bankruptcy cannot take over the job of Appointor. This is because the Appointor is not an ‘asset’. Instead, the role of the Appointor is an ‘obligation’. The job of Appointor is one of ‘fiduciary’.
Telephone us as you build the Appointor Update. We can help you answer the questions
See also
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]