Passing the baton -trusting into the future

Where, for any reason, adjustments between family members via the family trust is difficult to achieve, the alternative of making those adjustments via the parents’ Wills may be an available option. However, careful attention should be given to the “testator’s family maintenance” provisions[27] of the jurisdiction in which the parents’ Wills are to be subjected if there is a dispute. TFM provisions are often the “first port of call” in an inter-generational dispute. It is often preferable to avoid, if possible, the opportunity for those provisions to be engaged.

5        Other considerations

It is important to appreciate that the passing of a structure from parents to children and then on to further generations will usually require a much greater degree of formality in documenting administrative and contractual relationships affecting the trust. Siblings are far more likely to require “arms length” treatment in their dealings with each other and with the trust than was the case with their parents.

As a result, procedural steps and documents which may have been treated fairly informally between the parents without adverse effects, face a much greater prospect of having to stand up in court.

Therefore, before parents “pass the baton”, they need to ensure that they have firmly in place whatever procedural structures and agreements are required to provide certainty and discourage discord.

In addition to issues discussed above, matters that often require particular attention are:

  • Shares which are to be jointly held (the first sibling on the register often gets to cast the vote on those shares);
  • Appointment of Authorised Representatives for members voting on companies in which the trust holds shares;
  • Tenancy arrangements concerning properties used by the trust  (particularly where those properties may pass to family members who do not have an interest in the trust);
  • “At call” loan agreements.

An issue which often arises involves making provision for security of employment and management control of a family business conducted through the trust to the sibling who runs it, while securing to the other siblings the ability to protect their investment and to each have a seat on the board of directors. This may involve formalising a long term employment agreement (often with remuneration set by outside expert determination if necessary), coupled with “veto” rights via the board of directors on certain decisions or transactions (sale of the enterprise, borrowing limits, spending authorisation requirements, reporting etc).

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