Dad dies. What happens to his Family Trust with the farm in it?
For asset protection, all of Dad’s assets are in his Family Trust.
Dad’s Family Trust is worth $6m. It contains:
- a farm (worth $4m):
- and two apartments (worth $4m each).
On his deathbed, Dad promises:
“You girls get a $4m apartment each, the boy gets the $4m farm – it is all fair.”
The girls say nothing.
Dad dies. Dad was the Appointor. The Backup Appointors are the 3 children. Therefore, the 3 children are now the Appointors.
The Appointors control the Family Trust. (The trustee of the Family Trust does not control the Family Trust. If you think it does, then stop reading this article and watch this free training video on Family Trusts here.)
The son goes back to ‘his’ farm.
The girls go to a lawyer.
The girls’ lawyer happily finds a mistake in the drafting of the Family Trust deed. It is a common mistake, found in even brand-new Family Trust deeds.
What training do farmers need on Family Trusts?
To better understand this article:
- watch the free Family Trust training course
- read the latest upgrade requirements to Family Trust Deeds over 5 years old
- read how to do succession planning in a Family Trust (showing the importance of the Appointor over the Trustee)
The most common mistake in a Family Trust deed – The Majority of Appointors can override the minority
The poor drafting of the Family Trust deed allows a majority of Appointors to control the trust. The majority can override the minority. And take 100% of the trust assets.
Gleefully, the lawyer tells the girls:
“the two of you can together take all the assets in your dead Dad’s Family Trust. This includes the farm.”
This is a common fault with many, even brand-new, Family Trust Deeds. However, you will be happy to know that Legal Consolidated Family Trust deeds require the Appointor to act unanimously. This is the case since we started in 1988.
If you do not have a Legal Consolidated Family Trust deed, then speak to the lawyer who prepared your deed. Or, upgrade the Family Trust Deed here.
A faulty Appointor control clause allows the girls to take their brother’s farm
The girls distribute the farm and apartments to themselves ONLY. The girls sell the farm. Sadly, they had to get the police to get their brother, his wife and two children removed from the farm.
Who prepared the faulty Family Trust deed?
The brother, in distress, telephones the website that prepared his father’s Family Trust Deed. This is to seek advice.
The website owners sheepishly reveal that they are not lawyers. They are only computer programmers. They cannot give legal advice. Computer programmers selling lawyers’ templates is not good. But it is common in Australia.
These ‘fake’ legal websites get a template from a law firm. Sadly, that law firm is not responsible for ‘re-sold’ documents. The law firm is not responsible for templates resold on a non-law firm’s website.
Does your Family Trust have the same fault?
Can a majority of Appointors control 100% of the Family Trust assets?
Check your own Family Trust to make sure that all the Appointors must act unanimously.
If you are unsure, then telephone us. We are a law firm. We give legal advice as you build your document online.
What are other problems with Family Trust deeds?
Since 1988, we have reviewed 1,000s of Family Trust Deeds and attended many ATO audits. These are the most Family Trust Deed updates:
- For the Commonwealth Bank and other lenders:
· allow full indemnification out of trust assets
· allow ‘conflict of interest’ under both statute and common law
· increase the class of investments including exotics, warrants, derivatives, crypto and options - Greater powers and methods of amending the trust deed. Remove double entrenchment.
- Asset Preservation, strengthen bankruptcy protection and ensure no Partnership or ‘joint and several’ relationships
- Allow change to the trustee with minimum stamp duty. Especially for land-rich trusts.
- Division 7A mechanism to reduce automatic breaches.
- Change the vesting date under the new taxation cases.
- Change jurisdictions, within Australia, to allow forum shopping and ease of litigation.
- Change beneficiaries and classes of beneficiaries (but subject to CGT rules).
- Allowing changes to the trust to be verbal and via a minute or any other mechanism.
- Increase the ‘streaming provisions’ based on the ATO’s latest rulings. These include:
· franking credits
· streaming different classes of income and capital for minors for deceased estates, life insurance and super funds
· attribution relating to distributing capital gain to beneficiaries
· Bamford Decision, including defining ‘income’
· Loss Recoupment - And, of course, stop the majority of Appointors from taking all the proceeds of the trust over the minority.
Our law firm’s Family Trust Deed Updates rectify all of these issues. All without triggering a resettlement.
Free Farming Succession Planning Toolkit – protect your intergenerational legacy
These structures safeguard your intergenerational legacy, ensuring that future generations benefit from your diligent work and vision.
This free toolkit educates you on the various structures for planning your farm’s future. Enjoy the free education:
-
-
-
- Asset protection for the farmer’s children
-
-
Farmer lending money to children
-
-
-
- Lend money to the farming spouse most at risk – do not give them money
- Farmer should lend money to their children – do not make gifts
- Every year, make sure your children forgive any money your family trust owes them
-
-
3-Generation Testamentary Trust Wills for rural landowners
-
-
-
- How the farmer can protect vulnerable children in his Will
- How to stop your daughter-in-law from challenging your Will
- How do Bankruptcy Trusts in your Will protect the farmer’s children
- Life Estates do NOT protect farming children – cause tax problems
-
-
Farming Family Trusts
-
-
-
- How to put succession planning into your Family Trust
- Son lost the farm to his sisters – Family Trust guilty
- Son loses farm to his sisters AGAIN
- Free training video on Family Trusts
- Why the best practice is to have a company as trustee of your farming family trust
- Should the farmer have a bucket company under his Family Trust?
- Using the farming Family Trust as a service trust
-
-
Unit Trust for farming assets
-
-
-
- Unit Trusts v Company to hold a farm
- Who should be the trustee of a farming unit trust?
-
-
Partnership Agreements for Farming Families
-
-
-
- Partnership leasing farmland from the Family Trust
- Common Partnership structures safeguard the farmland in a trust
-
-
Self-Managed Superannuation
-
-
-
- Leasing farmland from your SMSF
-
-
Vulnerable Children’s Tool Kit
Free resources to protect young and vulnerable children:
- Elder Abuse – protecting the children as well as their aged parents
- Life Estates do NOT protect children – cause tax problems
- Child renounces a gift or Family Trust distribution for Centrelink and stop Trustee-in-Bankruptcy
- Adult children pay 32% on your super when you die
- Only disabled children can take your SMSF Reversionary Pension
- Parent dies child pays 66% tax
- Dad’s Will: child vs charity
- Disabled dad has $9m, two children and no Will
- Court rewrites disabled Dad’s Will to protect children
- Vulnerable children in Wills – watch the free training course
- Loans to children – in case your child divorces or go bankrupt
- Divorce Protection Trusts in Wills – when your child separates
- Making Wills for your children
- Special Disability Trusts in Wills – for disabled children
