Published in the Coffs Coast Advocate on 10 January 2015.
Joseph runs a small business through a family trust which was established by his accountant many years ago. Joseph is not quite sure how the trust works and is concerned about whether the business could continue to operate when he dies or if he were to become incapacitated.
The trust is what is known as a discretionary trust and is fairly common. The trust allows the trustee to distribute business profits to Joseph, his wife, their children and a broad range of other related beneficiaries at the sole discretion of the trustee.
The trust deed names Joseph as the “appointor”. This means he has the power to remove and appoint trustees of the trust. This is an important role given the broad discretions that the trustee has regarding distributions of trust funds.
The trust deed states that upon Joseph’s death, the executor of his will becomes the appointor of the trust. It is therefore very important that Joseph gives careful consideration to who he names as executor as they will essentially have power over the trust and in-turn, Joseph’s business. If Joseph were to suffer a loss of capacity, the trust deed states that the trustee becomes the appointor.
Currently, the trustee of the family trust is Joseph’s company Mary-Jo Pty Limited. He is the sole director and shareholder. This means that as director of the company, Joseph can decide to distribute profits to himself and his wife as beneficiaries of the trust, which with the assistance of his accountant, he has done many times in the past.
Under corporation law, upon Joseph’s death, his executor can appoint a new director of the company (which can include his or herself), and in-turn, become the controller of the family trust. This is another reason for Joseph to give careful consideration to his choice of executor. If Joseph suffers a loss of capacity, his power of attorney can also appoint a new director.
With the assistance of his solicitor, Joseph executes a will and power of attorney to protect his family in the future. He appoints his wife as his executor and attorney and importantly, appoints an appropriate substitute if she is unable to act.
