Family Trusts Part 2 – How You Can Plan for the Future


It is of great interest to us and most of our clients, how a Discretionary Family Trust dictates what will happen to their assets in the future. Most of our clients use Family Trusts as a wealth creation vehicle giving the flexibility for income distribution and Capital Gains Tax. It is really critical to understand that the assets within a Family Trust are not owned by the individual rather it is a control over the management of the trust and exercise of discretion as trustee that dictate the outcome.

Consider the recent high profile case of Gina Reinhart in the dispute with her children over the control of the key trust that owned significant business interests. The “appointor” is the named individual that can appoint or remove “trustee” of the trust. The trustee has the day to day management and control of the trust and exercises discretion about business or investment decisions. However, if there is a dispute then the appointor can remove the trustee and insert a replacement trustee.

It is vitally important that clients have the Trust Deed reviewed to check exactly who the appointor is and if they die, become disabled or insolvent, who in default will be appointed in that role. The last thing you want is for a trustee in bankruptcy to be controlling all of the assets and exercising the discretion to pay creditors. In addition, it is difficult for clients to dictate from the grave what will happen to those trust assets in the future on their demise.

So what happens after you are dead to the property, money and shares you have built up over a lifetime? You might not be able to “rule from the grave” but you can organise the players and stack the odds in favour of certain outcomes.

Ask us about how we can prepare a clear set of “Guiding Principles for Trusts” which can set out in detail the preferred exercise of discretion on specific future events. This is of great significance when there are business assets held or large property interests. We would be delighted to share with you our solutions in this regard and share with you the peace of mind that can be achieved by preparing these documents.


Family Trusts Part 1 – Who is in control of your Family Trust?



We often see Family Discretionary Trust Deeds which were set up several years (or event decades) earlier.  It is often overlooked that circumstances may have changed significantly since the Trust was established and that the ultimate controller of the Trust may not be the expected person.

The case of Kniepp v Annuaka Pty Ltd  last year is a reminder of the potential risks. In that case, a Discretionary Trust established in 1991 named a deceased’s first wife as the person with the power to change the Trustee of the Trust (sometimes this person is called an ‘Appointor’). Despite divorce in 1995, the first wife’s power was never dealt with or removed. 19 years after separation she attempted to exercise her power to seize control of the Trust Fund.

Although she was not successful on account of jurisdictional issue and interpretation of the specific Trust Deed in this case, the risk was real and potentially disastrous for the last family of the deceased.

The person with power to change the Trustee of a Discretionary Trust can often be forgotten about over time. It is a case of ‘out of sight, out of mind’ unless the Trust Deed is reviewed periodically.   There is also a tendency to view Discretionary Trusts as ‘carbon copies’ of one another with identical functionality and governing rules.

However, the precise terms of the trust deed are critical and we recommend to all our clients that Discretionary Trust Deeds are reviewed every few years to ensure it is appropriate given the current Law and individual circumstances.