A Matter of Trust: Estate Planning with Trusts

If you have a trust, there are specific issues that you need to consider from an estate planning perspective.

Are all trusts the same?

No, but the most common types of trusts that we encounter are:

An inter vivos discretionary trust, which is a trust set up during your lifetime.
A testamentary discretionary trust, which is a trust established via a Will. This type of trust can be a good way to provide asset protection (e.g., in the event of divorce or bankruptcy), to the beneficiaries in your Will, provided the inheritance stays within the testamentary trust.

What happens to my inter vivos discretionary trust when I pass away?

A trust is separate to your personal estate and so, when you pass away, it will continue – the assets of the trust will not necessarily pass to the people in your Will. Your Will governs assets that you own personally (e.g., bank accounts, real estate in your name etc.), not assets that are in your trust.

With an inter vivos discretionary trust, the main consideration from an estate planning perspective is succession to control because whoever controls the trust generally decides who receives benefits from it (i.e., income or capital). While you are alive, you may be the person who controls the trust because you are the trustee (or the director of the trustee if the trustee is a company), and you are also likely to be the appointor or principal of the trust (i.e., the person who can remove and appoint trustees of the trust).

But when you pass away, you obviously can’t occupy those roles anymore and so you need to consider who should take over control of the trust from you. That may be the beneficiaries in your Will. It may be the executors of your Will. It may be someone completely different, depending on your family circumstances. The critical thing is to ensure that you have appointed someone to take over control of your trust and that you are confident they will carry out your wishes.

There are other strategies that might be employed to maximise the likelihood of your wishes for the trust being realised.

Testamentary discretionary trusts

These trusts have similar issues to those discussed above.

Consider all strategies

If you have a trust set up and would like to discuss different strategies to ensure the assets in the trust are protected and dealt with in accordance with your wishes, please contact us today.

By Max Williams