Australia: Succession planning for the family trust - Helpful hints when dealing with the detail

In previous articles on this topic we have suggested a framework methodology to follow when planning for the succession of your family trust as well as identifying some common approaches that, in our experience, are adopted when implementing a succession planning strategy.

As with many aspects of estate planning and succession planning the 'devil is often in the detail' and many succession planning arrangements can easily fail if the details are not understood and planned for.

This article highlights some of the 'details' that need to be considered in order to properly plan for the succession of the family trust.

The Core Legal Documents

It might be a case of stating the obvious but, in order to plan properly, you need to obtain, read and understand the core legal documents that underpin the existence of your family trust. This fundamental step is unfortunately often not followed to the detriment of achieving the intended objectives.

What are the core legal documents for a family trust? That will depend on the nature of the trust, the activities of the trust and the history of the trust. However, as a general comment you will need to consider the following documents:

  • the original trust deed and all other deeds of amendment that have amended the trust deed over the years - it is amazing how many times deeds of amendment are overlooked even though the effect of a deed of amendment may have been to amend the trust deed in some very significant manner;
  • the most recent financial statements for the trust;
  • if the trustee (or any other officeholder) of the trust is a company - the constitution and any shareholder agreement for that company and the most recent annual company statement for that company which is lodged at ASIC; and
  • any other documents that set out critical legal rights and obligations that the trust may have, for example, financing arrangements, lease agreements over business premises, licensing agreements with third parties and the like.

Going through this disciplined approach often has other benefits in that it could identify gaps in the family's record keeping and document storage arrangements. For example: Do you know where the constitution for the trustee company is? Do you know where the title deed for the investment property or the holiday home is?

Why will all this background research be important in the succession planning? For many reasons and because you need to know the detail so that you can plan accordingly....planning does not exist in a vacuum!

The trust deed, for example, will disclose a range of absolutely critical information including:

  • who controls the trust and what rules exist in the trust deed that impact on how that control is exercised;
  • what is the class of people and entities who can benefit from the trust and are there any restrictions that have been placed on how or when those beneficiaries can benefit; and
  • what powers does the trustee have in terms of the general administration of the trust and are there any restrictions on these powers.

The constitution of the trustee company will then provide a lot more detail as to how the directors of the company make their decisions and how they cast their votes on relevant issues, the rights that the shareholders have generally and specifically in terms of each class of shares that is on issue, how shareholder rights relate to (or don't relate to as the case may be) the appointment of directors and the rights and obligations that shareholders have vis-a-vis each other.

The annual company statement identifies who is currently recorded on ASIC records as being the directors , the shareholders and importantly, how many shares each shareholder owns and what class of shares they own.

An Example - the A Family

To put this into context consider the A Family. The A Family is not a complex family in terms of relationships or family dynamics. Mr and Mrs A have been married for 35 years, the first marriage for both of them. They have two children, B and C. B is 30 years of age and recently married, expecting their first child. C is 26 years of age, single and currently working overseas. Family relationships are very good between everyone in the family although B and C are very different people in terms of their investment risk profile. B and C are also at very different stages of life with B likely to experience some financial pressures in the near future starting a family.

The A Family are also not complex in terms of their financial asset holdings. Mr and Mrs A own their family home as joint tenant, they have joint bank accounts and they each have share portfolios in their own personal names.

In addition, the A Family have a self-managed superannuation fund (A SMSF) that holds a significant amount of their family wealth and a family trust (A Family Trust) that also owns a significant amount of their family wealth. Mr and Mrs A are both drawing reversionary pensions with each other nominated as the reversionary pensioner. Mr and Mrs A are both members of the A SMSF and B is also a member. A Co Pty Ltd is the trustee of the A SMSF.

A Co Pty Ltd is also the trustee of the A Family Trust. It is not unusual in a family context for the same company to be the trustee of both the family SMSF and the family trust. Mr and Mrs A both jointly hold the office of appointor of the A Family Trust, which gives them the power to remove the trustee and appoint a new or additional trustee and to also appoint a successor to the office of appointor. The rules of the trust deed for the family trust state that the office of appointor defaults to the surviving joint holder of the office. The last surviving person to hold the office of appointor can nominate a successor, or successors, to take over the office of appointor but, if they make no nomination, the default is that the executor of the estate of the last surviving appointor will then take over the office.

Closer investigation of A Co Pty Ltd reveals that it is a very simply structured company. The directors of A Co Pty Ltd are Mr and Mrs A and B (which means that the superannuation laws are complied with because all members of the SMSF are also directors of the trustee company. The shareholders in A Co Pty Ltd are Mr and Mrs A and B, all of whom own one ordinary share with equal voting rights.

The estate planning objectives and succession planning objectives for Mr and Mrs A are also quite simple and straightforward. Mr and Mrs A would like to benefit each other with the entirety of their estate and, when the second of them die, they would like to benefit B and C equally.

The Wills of Mr and Mrs A are structured very simply. Mr and Mrs A are nominated to be the sole executor of each other's estate with B and C nominated jointly to be the substitute executors. The distribution clauses in the Will leave "the entirety of my estate to my surviving spouse provided that they survive me by 30 days and, if they don't, then I leave the entirety of my estate to B and C in equal shares".

Because Mr and Mrs A consider their circumstances and their objectives to be quite simple and straightforward they don't bother getting any professional estate planning or succession planning advice.

So, how does this all play out for the A Family?

Let's assume that Mr A dies first. The family home will pass to Mrs A as the surviving joint tenant owner and the joint bank accounts will also pass to Mrs A. Mrs A will receive the benefit of Mr A's superannuation being the nominated reversionary pensioner. Depending on the position of Mrs A in terms of her transfer balance cap, she may need to roll some or all of her own superannuation pension back into accumulation so that she can remain within the post 1 July 2017 pension cap rules.

In relation to the A Family Trust, Mrs A will now be the sole appointor, will continue to be a director of A Co Pty Ltd (with B) and will own 2 of the three shares on issue in A Co Pty Ltd (the Will of Mr A left his one share in A Co Pty Ltd to Mrs A and B owns the other share). Although Mrs A is one of two directors in A Co Pty Ltd she is effectively in control of the A Family Trust because she is the sole appointor and hold the majority of shares in A Co Pty Ltd.

What happens when Mrs A subsequently dies?

Under the Will of Mrs A, B and C are both executors of the estate and the assets of Mrs A are left equally to B and C. The family home will likely be sold, and the net cash proceeds distributed equally between B and C. Alternatively, the family home could be distributed to B and C so that they hold it as tenant-in-common in equal shares. The cash in Mrs A's bank account will be distributed equally to B and C.

Because Mrs A has not nominated anyone to succeed her to the office of appointor of the A Family Trust, that office will default to B and C jointly as they are the executors of her estate.

Mrs A's two shares in A Co Pty Ltd will be distributed under her Will to B and C so that they each receive one share.

What is the position of the A Family Trust?

B and C jointly hold the office of appointor.

B holds two shares in A Co Pty Ltd and C holds one share in A Co Pty Ltd. B is the sole director of A Co Pty Ltd.

B is actually in control of the A Family Trust, not B and C jointly. This is because B is the sole director of and majority shareholder in A Co Pty Ltd and, as a minority shareholder in A Co Pty Ltd, holding the same class of ordinary shares that B holds, C does not have any rights to appoint herself as a director. C is reliant on B to appoint her as a director and as an equal shareholder. Further, as a joint appointor with B, C cannot unilaterally appoint a new or additional trustee to the A Family Trust without the consent of B.

Worst case scenario? B administers the A Family Trust for the significant financial benefit only of B and his family and to the significant financial detriment of C.

It is easy to see how the simple, sensible and traditional intentions of Mr and Mrs A could easily not be achieved in relation to the A Family Trust, to the significant detriment of C. Depending on the nature of the relationship between B and C, it is possible that they can work together to rectify the problem so that all levels of control of the A Family Trust is shared equally by B and C. But why rely on the good character of B to achieve the desired is not fair to put C in this position. Further, for many clients there is a regularly expressed concern about the influence that spouses can bring on previously very harmonious family relationships. Will the good relationship between B and C be adversely affected by the influence of B's new is not fair to put B or C in this position?

It could get worse....what about the A SMSF?

Remember that A Co Pty Ltd is the trustee of both the A Family Trust and the A SMSF....and B now controls A Co Pty Ltd after the death of Mrs and Mrs A....and, save for making on the estate of Mrs A, C can't do anything about that without the consent of B. If Mrs A has not made a binding death benefit nomination for the payment of her superannuation death benefit, her death benefit will be distributed in accordance with the superannuation laws and at the discretion of the trustees....that is, B. B could exercise the trustee discretion to distribute the entirety of Mrs A's superannuation to B, being a child of the deceased member. Is there anything that C can do to stop this? Yes, but unfortunately for C it involves bringing a legal action against B.

So, what could/should Mr and Mrs A have done differently to prevent these potential problems arising and ensure that their simple estate and succession planning objectives are achieved? The following is list of things that would have been important to consider and, if appropriate, implement.

  • Appoint a new company to be the trustee of the A Family Trust and structure that new company with Mr and Mrs A as the only directors and only shareholders.
  • Ensure that, when Mr and Mrs A have both died, B and C (or their nominee) both have rights to be appointed as directors of the new company that acts as trustee of the A Family Trust and will be equal shareholders in that company.
  • Ensure that the trust deed and company constitution deal appropriately with circumstances of deadlock in decision making between B and C.
  • Put in place binding death benefit nominations to ensure that the superannuation death benefit entitlements are paid in the way that they want them to be paid.

There are other very prudent and sensible strategies that Mr and Mrs A should think about when considering the multi-generational succession planning for the A Family Trust but, in reality, these four simple planning techniques could save this family an enormous amount of stress and legal fees in sorting out a messy set of unintended circumstances in the next generation.

As with many things in inter-generational succession planning for family entities, the devil is often in the detail....don't ignore it.

See related articles -

Succession Planning for the Family Trust Getting Started

Succession Planning for the Family Trust - Common Approaches

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions