Update Family Trust for – Trustee, Appointor & Deed Update (‘everything’ update)
Build this Family Trust Update to:
- confirm or change your Trustees
- confirm or change Appointors & Guardians
- confirm or change your Backup Appointors (after the current Appointors are all dead)
- fully updates your Trust Deed (rules)
1. When to update a Trustee in a Family Trust?
- Trustee retires
- Appointors sack a Trustees
- Go from a corporate Trustee to a human trustee
- Go from human to a corporate Trustee (company as trustee)
- Want a single Trustee only
- Trustee dead, gone bankrupt, or insolvent
There is generally no transfer (stamp) when you update a Family Trust. But in NSW you need to be careful. See here.
2. Why update the Appointor in a Family Trust?
Appointors change for many reasons. People may wish to retire as an Appointor. Perhaps you would like to add your spouse as an additional Appointor. This Deed of Variation:
- allows the current Appointors and Guardians to retire or be removed if dead
- confirms those current Appointors who remain as Appointors appoint any new Appointors
Example: Mum and Dad are the Appointors. Mum dies. Dad continues as the Appointor. Dad is happy to control the Family Trust by himself. Nothing in the Trust Deed or Mum’s Will states anything different. Therefore, all Dad is doing here is formally removing Mum as Appointor. Mum’s executor or next of kin signs on Mum’s behalf. The Family Trust may have a system or procedure for dealing with dead Appointors.
Trustee vs Appointor in a Family Trust
Who is in charge? Is it the Trustee that ‘owns’ the assets? No, the Appointor is god. The Appointor bosses the Trustee. The Trustee looks like it is in control, as it has the assets in its name. However, the Trustee takes its marching orders from the Appointor. The Appointor can sack the Trustee on a whim, for no reason at all. For example, the Trustee has nothing to do with this Deed of Variation. The variation relates to the Appointors only. The Trustee is not even party to the Deed of Variation.
Appointor, Guardian, Principal, Controller, and other names for ‘god’
The wonderful thing about trusts is that they suffer very little meddling by the government. You are free to put into your trust deed pretty much anything you want. (That is why it is important to have a specialist law firm, like Legal Consolidated, prepare your trust deeds.)
There are two main persons in a Family Trust: the ‘controller’ and the trustee. The ‘controller’ of the trust acts like a god. It can do whatever it wants. It ‘controls’ the trust. Depending on who prepared your Family Trust deed the ‘controller’ may be known by many different names:
- Appointor and Guardian
- Trustee (this is very uncommon, except for Deeds older than 1972)
Can the Family Trust appointor be BOTH mum and dad?
Yes, commonly Mum and Dad are both Appointors. That is fine. You can have as many Appointors as you wish.
You can also have as many Backup Appointors as you wish. The Backup Appointors are generally your children. For example, ‘the union of Dad’s Full Name and Mum’s Full Name’. If you have no children then the Backup Appointors are your loved ones, friends or charities.
Succession in a Family Trust
Q: Mum is the sole and current Appointor. We then want Dad to be the Backup Appointor. And then we want the children as the Backup Appointor after Dad dies. So in effect, we want two levels of Backup. First Dad. And then the children.
A: Instead, make Mum and Dad the Appointors. Just add Dad on as one of the Appointors. Mum and Dad act together. Only after both Mum and Dad are dead do the Backup Appointors take control of the discretionary trust. E.g.
Appointor Staying: Mum
Appointors New: Dad
Back-up Appointors: Child 1 and Child 2
Wife dies does the other Appointor act alone?
Q: My wife and I are both Appointors. If she dies before her do I become the sole Appointor?
A: Every Family Trust deed and update is different. However, for Legal Consolidated Family Trust deeds and updates the answer is yes. If your wife dies you become to sole Appointor. You can also change the Backup Appointors after she dies. And, vice versa, if you die first.
Q: Can one of the Appointors change the Backup Appointors unilaterally?
Each tax law firm prepares its Family Trust deeds differently. At Legal Consolidated you need all the current Appointors to consent to the Deeds of Variations of a Family Trust. All Appointors must sign.
So, for Legal Consolidated Family Trust deeds and Deeds of Variation, the answer is yes. Your wife also needs to sign the Deed of Variation of a Family Trust. You must act together. The decisions of all Appointors must be unanimous. And that is the best approach.
Can the Family Trust appointor be a company?
It is becoming more common to set up a company as a dedicated Appointor of a family trust. So, for example:
- Mum and Dad remain as Appointors, in the first instance.
- They build a Legal Consolidated company to be the Back-up Appointor:
- Mum and Dad own the shares in the company.
- The shareholders have ultimate control of the company, not the directors.
- When mum and dad die (i.e. the Appointors die) their children (or other beneficiaries you decide on in your Will) inherit the shares in the Appointor company.
- Under the terms of their 3-Generation Testamentary Trust Wills the children, get everything equally. They, therefore, equally control the family trust. This is because they control the shares in the Appointor company. (This is an exemption to the rule that a Will should not control the family trust.)
- Commonly you would also have a Shareholders Agreement to lock in the rules. If the beneficiaries getting the shares are minors then the executor(s) in mum and dad’s 3-Generation Testamentary Trust Wills control the shares (and therefore the assets in the Family Trust). They can only act in the best interests of the minor children.
To follow this strategy you and your spouse remain as Appointors. Your company is the Backup Appointor.
Should the Corporate Trustee of the Family Trust also control the Appointor position?
Q: I have a Legal Consolidated company. It is the trustee of my Discretionary Trust. (“Corporate Trustee“)
As a variation of the above strategy can I have the Corporate Trustee own the shares in the Corporate Back-up Appointor? (Instead of my children?)
A: No. You must not do this. The Trustee of a Family Trust is a squashed cabbage leaf. It takes on all the risk. It should never:
- be given any powers
- control the succession planning of the Family Trust
- have control of the Family Trust.
This compromises the Discretionary Trust’s protection of its assets.
(And, as an aside, the shareholders of the Corporate Trustee end up controlling the Family Trust. The general structure is the Appointor bosses around the Appointor. Not the other way around.)
(For the same reason a ‘bucket company‘ must never be controlled by the Family Trust’s Corporate Trustee.)
Should a Will, 3-Generation Testamentary Trust, or Testamentary Trust ‘control’ my Family Trust?
It is wrong and foolish to allow your Will (or any trust formed under your Will) to control the succession of your Family Trust. The only way that you should update or direct who is the controller of your family trust is via a Deed of Update. This is the document you are about to start building. Just press the blue button above to start the free building process. Read the hints as you build the document. Educate and Empower yourself. You are in control.
3. Why a Family Trust Update?
Just like your car, a Family Trust Deed needs updating and servicing. As well as updating your Trustees and Appointors we also update the:
- Streaming – franking credits, Attribution, and separate accounts to reduce CGT & income tax, complies with Thomas v FCT  FCAFC 57
- Bamford’s Case – definition of Net Income – satisfies ATO
- Loss Recoupment – retain and stream losses to particular beneficiaries
- Appointors to act unanimously – so two Appointors cannot take the assets over the third Appointor
- Bank loans to the Family Trust – the required bank clauses and Indemnity rights (CBA, St. George, NAB, ANZ, BankWest, AMP, QLD, Macquarie, Citibank, ING, Bendigo, BankOne, & Westpac)
- Bank loan Compliance Certificate on our law firm’s letterhead
What categories are required for Bamford streaming?
Have a look at our ‘Sample document’ above. We have developed a unique group of categories with open classes for streaming. This list is based on the ATO audits we have attended and our legal research:
Categories for streaming
a category, character, type, class, part, item, or source, including (but not limited to) the categories: Net Capital Gains, Net Capital Losses; gains, profits, or any losses of capital or a capital nature treated as assessable income or allowable deductions under the Tax Act for the Trust Income for any Financial Year; gains and profits or any losses of capital or of a capital nature that are not treated as assessable income or allowable deductions for taxation purposes for the Trust Income for any Financial Year; any income, receipts, gains or profits or any losses
Categories for Bamford
disbursements or outgoings of income or on income account that are or are treated as assessable income or allowable deductions for taxation purposes about the Trust Income for any Financial Year; any income, receipts, gains or profits or any losses, disbursements or outgoings of income or on income account whether treated as assessable income or allowable deductions for taxation purposes for any Financial Year; any income, receipts, gains or profits that are exempt or otherwise not liable to tax under the Tax Act or any other act or regulation; Franked Dividends; Unfranked Dividends; any foreign income, foreign income tax credit, other tax credit, interest; any royalties, minors and others with proceeds from deceased estates, superannuation funds and life insurance and additional categories set out in any minutes
ATO required streaming provisions in a Family Trust
- Plus, categories mentioned in any Australian Taxation Office publication, from time to time; and
- any combination or part of the above
Unsure whether your Family Trust Deed needs updating? Speak to your Accountant and Financial Planner.
See the full ‘Sample document’ of the Family Trust ‘Everything’ Update. There are training videos and hints to help you as you build the Family Trust Update.
But Bamford is not over. The ATO continuously revisits Bamford
Ever since Bamford v Federal Commissioner of Tax clarified the definitions of “income of the trust estate” and “share” the ATO has remained concerned with “income tax shuffles”.
Like a child that cannot stop picking at a wound, one example is Taxpayer Alert TA 2013/1. It focuses on arrangements that “exploit” the difference between trust income and taxable income. This is where the ATO believes that trust
income is smaller than taxable income. This is without some explanation.
A common ATO problem is when the “bucket” company or loss-making entity “shuffles” the tax liability. As 30 June fast approaches each year accountants rush to prepare annual trust distributing resolutions. Your accountant uses the upgraded Legal Consolidated Deed’s flexibility to follow the “proportionate” method set out in Bamford.
The Legal Consolidated Trust update allows the trust income to be calculated correctly. Both Legal Consolidated deeds and trust resolutions allow for any perceived “mismatches”.
Does the Family Trust updated Deed mentions AASB15 “Revenue from Contracts with Customers”?
As of 1 July 2021, non-listed companies are no longer allowed to prepare Special Purpose Financial Statements (SPFs). Instead, they prepare the arduous General Purpose Financial Statements (GPFS). Small proprietary companies where 5% of their shareholders request GPFS to be prepared are included in the definition of companies that comply with this requirement.
This requirement also applies to SMSF, Trusts, and Partnerships, but only where the founding Deed makes mention of AASB15 in its definition of income.
Happily, Legal Consolidated documents do not mention AASB15 in the definition of income.
Further, no Legal Consolidated documents require compliance with the arduous AASB15.
Who owns the shares in a corporate trustee of the Family Trust?
Q: I understand that the Appointor can change the Trustee of the Family Trust at any time. If the trustee of the Family Trust is a company then any shares in the corporate trustee are potentially worthless. But would you still suggest that the shareholder should pass on their shares via a Will? And what about where the Appointor doesn’t change anything?
A: Firstly, I am not sure what you mean by the expression ‘Appointor doesn’t change anything’. If you are suggesting that the Appointor is lazy. And leaves no Backup Appointor, or worse, leaves the Will to deal with who is the Appointor, after death, then I disagree. You cannot and should not leave the powerful Appointor position to chance.
So, I am assuming for the rest of this answer there is a proper succession plan. So, what do you do with the shares in the corporate trustee? It does not hurt to have the shares in the corporate trustee go to your co-Appointor. This is the other Appointor and then upon both dying your Backup Appointor. And when they are also dead to the Backup Appointors (who are the next in line).
For example, Mum and Dad are joint Appointors. Mum holds the shares in the corporate trustee. She dies. The shares go to Dad. Dad now dies. The shares in the corporate trustee go to the Backup Appointor. This is in your Will.
That is normally a simple matter of having the shares in the corporate trustee in your non-working safe harbour spouse. Upon their death, you get the shares in your spouse’s 3-Generation Testamentary Trust Will (it automatically contains a Bankruptcy Trust, so you as the person of straw are safe.) Then when you die your children/beneficiaries get the shares under your Will.
What happens if I forget to appoint a Backup Appointor?
Q: The Appointor dies. And there is no Backup Appointor. But the dead Appointor left me the shares in the corporate trustee of the Family Trust. This is through the dead Appointor’s Will.
Can I use the company to take control of the Family Trust? Can I use the corporate trustee to make myself the Appointor?
A: There is huge complexity in the lack of succession planning for the Family Trust. Every Family Trust deed is different. Normally, you go to the Supreme Court for a court order. That is expensive and time-consuming. Better for the Appointor to get their house in order before they die, become of unsound mind, or go bankrupt.
What happens when a trustee dies?
Q: You say “When the Trustee dies or is ‘wound up’ if a corporate trustee nothing happens. The Appointor merely appoints a new trustee. The trustee is a puppet. It is replaced at the whim of the Appointor. ” Are the Family Trust assets in the dead trustee’s name now just transferred to the next Family Trust trustee?
A: Yes, the Appointor appoints a new trustee. The assets are transferred from the dead trustee to the new Family Trust trustee. We do not give tax advice on this, but usually, there is no stamp duty or CGT issues.
What is the corporate trustee of the family trust shares are controlled by hostiles?
Q: What if the corporate trustee’s shares are owned by yet another company? So the corporate trustee is a subsidiary of another company.
- Corptrust Pty Ltd owns no assets in its name.
- Rather, Corptrust Pty Ltd is just a trustee of a Family Trust. That is its only job.
- All the shares in Corptrust Pty Ltd are owned by another company called Headco Pty Ltd.
- So, Corptrust Pty Ltd is a fully owned subsidiary of Headco Pty Ltd.
A: Let us say that John owns all the shares in Headco Pty Ltd. Therefore, John controls both Headco and, through Headco, the corporate trustee Corptrust.
John dies. His Will leaves everything to his wife. “Everything” includes shares he owns in all his companies (e.g. BHP, Rio Tinto, and Headco). The wife is, therefore, the sole shareholder (controller) of Headco. The wife can sack any directors she does not like. Through Headco she controls Corptrust. And she can make Corptrust do whatever she wishes.
But all of the above does not make much difference. John’s two children, Fiona and Alex, are the Backup Appointors of dead Dad’s Family Trust. Therefore, upon John’s death, the Appointors become Fiona and Alex. They merely sacked the current corporate trustee Corptrust. Fiona and Alex do not care who the shareholder of Corptrust is. As they do not control the company, that is enough of a reason to remove it as trustee of dead dad’s Family Trust.
Besides, who wants your mum to tell you what to do?
Fiona and Alex built a special type of company called a Family Trust Corporate Trustee. They call it Finalex Pty Ltd.
As Appointors, they sack Corptrust as Trustee. The assets in the Family Trust are transferred to the new Family Trust trustee. This is Finalex Pty Ltd. Fiona and Alex, of course, own all the shares in Finalex Pty Ltd.
How do I find out that I am the lucky Backup Appointor?
Q: How do my loved ones and successors know I have a Family Trust with all these goodies in it? When the Appointor dies, how do the Backup Appointors know that they are now in charge? How do young children know about their Backup Appointor status if both parents die and how would their new guardian know?
A: You need to keep good records. You need to talk with the executors named in your Will. It would help if you talked with the Backup Appointors. You need to keep your shares and property certificates where they can be found.
As to ‘young children’, you make them the Backup Appointors. If they are still under 18 years of age at your time of death, then their next of kin take on the role of protecting the children’s interest in the Family Trust.
Of course, the Backup Appointor can be changed. This is similar to changing the beneficiaries in a Will. And this can happen without the Backup Appointors knowing. Being the Backup Appointor is a volatile position.
What is the process of the Backup Appointors taking over?
Q: Does the Backup Appointor apply through the courts to be named as the Appointor of the Family Trust? Or do they just use the Appointor’s death certificate? This is to gain access to the various accounts. For example, bank accounts and listed shares.
A: I can not speak for all Family Trust deeds. They are all different.
However, with Legal Consolidated Family Trust deeds and updates, the Backup Appointor merely needs to prove the Appointor is dead. Through the Trustee (or put in place a new Trustee if you do not like the old Trustee) you are in control. No further deed is required. This is if you have a Legal Consolidated Family Trust deed or Deed of Variation of a Family Trust deed.
To labour the point, when the next Appointor takes over it bosses the Trustee around. (Just like the old Appointor did). In that case, there is no transfer of assets. There is just a new master bossing the old trustee around.
If the trustee is hostile then it is sacked by the Appointor. And then the new Trustee has all the assets transferred out from the old Trustee’s name into the new trustee’s name.
Does the Family Trust deed allow for this Deed of Variation?
All trust deeds are different. Read your original trust deed, as well as each subsequent deed and instrument changing the trust deed. This is to ensure that this Deed of Variation is authorised and allowed by the previous deeds. Legal Consolidated does not advise in this area.
This Deed of Variation assumes:
- that the Appointor, Guardian, Principal, or similar power holder (Controller) has the power to retire and appoint a replacement Controller in its place.
- that no consent is required from any party to update the Family Trust.
- the Trustee consents to the Deed of Variation (the Trustees sign the Deed of Variation and the minutes).
- the current Appointors consent to the Deed of Variation (the Trustees sign the Deed of Variation and the minutes).
Can I remove a Beneficiary from the Family Trust?
After a Divorce or to comply with Centrelink for your parents, you may wish to remove a Beneficiary in your Family Trust. You can do that by building a Remove a Beneficiary from a Family Trust Update. This Update also does all of the above.
For more legal advice telephone us. We are a law firm. We can help you answer the questions. But start the free building process first. It answers most questions.
|Family Trust Deed – over 18,000 sold|
|Family Trust Updates:
| 1. Upgrade the Family Trust Deed only – streaming, Bamford, trust law & tax
| 2. Change the Appointor – includes succession planning
| 3. Replace the trustee only
|4. Change the Name of the Family Trust|
|5. Exclude a Beneficiary in the Family Trust|
|Company – Trustee of a Family Trust – corporate trustee for asset protection & business|
|Company – Bucket Company – beneficiary of a Family Trust|
|Annual Distribution Minutes for Family Trust – sign minutes before 30 June – ring us if building over 10|
|Forgive Family Trusts’ UPEs – human forgives money the Family Trust owes (UPEs & loans)|
|Deed of Gift – to prove the money you put into your Family Trust was a gift (not a loan)|
|Division 7A Loan Deed – company lends trust money to Family Trust (UPEs & loans)|
|Loan Agreement – lend money to your Family Trust|
|Vesting Deed – wind up your old Family Trust (Centrelink compliant)|
|Training Course on Family Trusts – includes the Family Trust Deed|