To better understand this article you may wish to first:

  1. watch the free Family Trust training course
  2. read the latest upgrade requirements to Family Trust Deeds over 5 years old
  3. read how to do succession planning in a Family Trust (showing the importance of the Appointor over the Trustee)

Dad dies. What happens to his Family Trust?

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 $2m):
  • and two apartments (worth $2m each).

On his death bed, Dad promises:

“You girls get a $2m apartment each, the boy gets the $2m 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.

The most common mistake in a Family Trust deed – 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 that prepared your deed. Or, upgrade the Family Trust Deed here.

Disabled children in Wills – free training course for Accountants, Financial Planners & Lawyers

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 re-sold 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:

  1. 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
  2. Greater powers and methods of amending the trust deed. Remove double entrenchment.
  3. Asset Preservation, strengthen bankruptcy protection and ensure no Partnership or ‘joint and several’ relationships
  4. Allow change to the trustee with minimum stamp duty. Especially for land-rich trusts.
  5. Division 7A mechanism to reduce automatic breaches.
  6. Change the vesting date under the new taxation cases.
  7. Change jurisdictions, within Australia, to allow forum shopping and ease of litigation.
  8. Change beneficiaries and classes of beneficiaries (but subject to CGT rules).
  9. Allowing changes to the trust to be verbal and via minute or any other mechanism.
  10. 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
  11. And, of course, stop the majority of Appointors taking all the proceeds of the trust over the minority.

Our law firm’s Family Trust Deed Updates rectifies all of these issues. All without triggering a resettlement.

Vulnerable Children’s Tool Kit

Fre resources to protect young and vulnerable children:

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