Passing the baton -trusting into the future

  • 2.       Having a “family agreement” document which binds all parties and deals with the treatment of entitlements as between the beneficiaries. (However care should be taken in any external agreement to ensure that it is binding on the parties but does not fetter the discretion of trustees of family trusts.)
  • 3.       Letting the next generation work out for themselves how they wish to regulate the structure. One way of achieving this without “giving away the farm” during the parents’ lifetimes is to execute a vesting deed for the trust (revocable during the parents’ lifetimes) under which the vesting day will be brought forward and the trust vest equally in favour of the siblings on a given date (e.g.12 months after the surviving parent’s death) unless all siblings give written notice to the trustee forbidding the vesting day being brought forward. The siblings either reach agreement in that period or the decision is taken for them. (For the intervening period between the death of the surviving parent and the proposed early vesting date, it would be necessary to  put in place a limited range of “equality preserving” mechanisms such as those discussed above.)
  • 4.       Simply bring forward the vesting date of the trust to be the day on which both of the parents are deceased and vest all assets in favour of the children equally. It may be necessary to amend the trust deed to grant the trustee a “power of postponement” on the timing of realisation of assets to ensure that the deaths of the parents in inopportune market circumstances does not compel a “fire sale” of the trust assets. Notwithstanding the fact that this is not the type of inter-generational transfer on which this program is focussed, it is not uncommon for parents to take the view that they prefer absolute certainty in their testamentary wishes and that any adverse revenue outcomes are an acceptable cost.      


    Unpaid present entitlements from prior income distributions which are owed by trusts to beneficiaries can play a role in succession planning, but they are usually a fairly blunt instrument.

    From a planning perspective, a UPE can be used in much the same manner as “at call” loans owing by the trust to parents and other entities. However it is prudent to bear in mind the legal and taxation differences between a debt and a UPE. In particular, care should be taken in forgiving or releasing debts or UPEs owing by corporate beneficiaries in favour of trusts.[21]

    Within a family context, large “at call” loans or UPEs owing by the family trust to the parents can provide a planning mechanism which allows the parents to pass control of the trustee to the children during their lifetimes, but to retain a “fall back” control mechanism (the ability to call up all the moneys owing), plus the ability to have progressive access to amounts of trust capital.

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