Thu 06 2018

Succession planning trusts

Many individuals set up discretionary trusts for asset protection and tax reasons. However, standard trust deeds rarely comprehensively deal with succession on your death or incapacity.

Your trust continues to operate despite your death and the assets in it do not form part of your estate. From a succession planning perspective you can, however, deal with control of the trust. The positions of control are:

  • the trustee – who decides what investments are made and how trust funds are distributed and
  • the appointor (or guardian) – who can appoint and remove the trustee and has ultimate control over the trust.

Documents can be prepared to deal with the succession of these positions. However, these documents alone do not properly resolve what happens to the trust when your children control it, since:

  • no beneficiary has the right to income and capital. This can cause a dispute or deadlock which results in a stalemate or some children overriding the decisions of the others and distributing income and/or capital only to them and their family and
  • with a standard trustee company constitution, a new director can only be appointed if a majority of directors agree. This could result in one child or their family branch not being able to appoint a director, and being excluded from trustee decisions.

To avoid these problems, we have developed the following solutions

For a new trust – a ‘succession planning trust’ which:
  • is fully discretionary for tax and asset protection reasons until after a trigger event (usually the death of both parents)
  • after the trigger event, provides for an automatic split of income where a dispute/deadlock cannot be resolved by unanimous agreement (to maintain the discretionary nature of the trust) or through our unique dispute resolution clauses
  • after the trigger event, has a bespoke exit clause to deal with capital. This allows a family branch to exit but only after following set procedures regarding valuing their interest and exiting smoothly. This can also be overridden if everyone agrees (again to maintain the discretionary nature of the trust)
  • comprehensively deals with succession to the office of appointor (or guardian) and
  • is coupled with a tailored company constitution and special classes of shares being issued. Each share allows each child’s family branch the right (after the trigger event) to appoint a director to represent them.
For an existing trust – a ‘succession planning company constitution’:
  • since care must be taken not to trigger any tax liabilities, we do not amend the existing trust deed and
  • instead, we adopt a new bespoke ‘succession planning company constitution’ and issue special classes of shares. This achieves the same outcome as discussed above, but the terms are contained in one document.


Emma has extensive experience in advising clients in estate planning and estate administration, trust establishment, and ongoing administration, trust estate disputes and structuring for succession of ownership and control of private and family businesses...

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