What is a trust?
A trust is a separate legal entity which holds assets, such as property or cash. and have a number of advantages, particularly from an asset protection perspective. They are very popular structures which are often set up by people during their lifetime.
How is a trust structured?
Trustee: Every trust has a Trustee. The Trustee can be a person (or persons), or a company. The role of the Trustee is to control the trust. They make all the decisions about what happens in the trust, including how to invest monies and how to pay money out.
Appointor: The vast majority of trusts also have a second position of control called an Appointor. The Appointor can fire the existing Trustee and replace them with a new one. Because of this, they are often the real power behind a trust.
Guardian: Some trusts also have a position called a Guardian. The Guardian has the job of approving certain decisions of the Trustee. Sometimes the Guardian is an independent person such as an Accountant.
What happens to the assets in my trust when I die?
Any money or property in a trust when you die stays in the trust. Because the trust is a separate entity to you, those assets are not in your name and do not pass by the Will. The trust survives you and continues on after your death. What can be passed on, however, is control of the trust.
How do I pass control of my trust?
We need to look at all of the positions of control in a trust (Trustee, Appointor and Guardian) when passing on control of your trust. Ultimately, how control is passed depends on what the Trust Deed lets us do. However, in most cases we would need to:
- Pass on Trustee control:
- If the Trustee is a company, we need to make sure the shares of this company pass according to who you want to control the trust. This can be done in your Will.
- If the Trustee is an individual, we need to appoint a new person to this role if the Trust Deed allows this.
- Pass on Appointorship:
- An Appointor can usually name someone to take over after them. This is usually done in a separate Deed. Where there are minor children, we like to look forward to plan for the trust ultimately ending up in their hands.
- Pass on Guardianship:
- A Guardian can also usually name a successor, in the same Deed as we name the successor Appointor. We may need to give careful consideration to who should be in this position.
Can I direct what happens to the assets in my trust?
The short answer is no. We can determine who will control your trust, but we cannot dictate how they will do that. Ultimately the decision about how the assets in your trust are managed and paid out, and even if the trust continues, are up to the new controllers. This makes the choice of controllers very important!
We can do a Statement of Wishes to the new controllers which sets out what you would like to happen, however ultimately this is only a guideline and is not binding on them.
Steve Wildes, Partner, Paris Financial
With thanks to Jessica Amberley at Legal Essentials for information provided.
Image courtesy of hyena reality at FreeDigitalPhotos.net