Trusts work by separating control of the assets held in the trust from the right to benefit from those assets.
All trusts are unique and how your trust works depends on the terms set out in your particular trust deed (the ‘rule book’ for the trust).
In a family trust (technically known as a discretionary trust) the important roles are: Trustee Beneficiaries Appointor/Principal/Guardian (this is an optional role and your trust may not have one).
Let’s look at how each of these roles works.
Trustee
The person who has control of the trust assets is the trustee. The trustee is the legal owner of the assets and is responsible for the day-to-day management of the trust and the proper administration of the trust. They generally have absolute discretion to choose who receives a distribution of income or capital from the trust.
Beneficiaries
A discretionary trust generally has many people who can potentially benefit from the assets in the trust (beneficiaries) and each beneficiary’s entitlement is at the complete discretion of the trustee (provided the trustee has given real and genuine consideration to the needs and circumstances of each beneficiary).
If you are simply a beneficiary without being a trustee, then your entitlement to benefit from the trust is at the trustee’s discretion.
A trustee can also be one of the beneficiaries of the trust (if the trust deed allows), and if that is the case, then the trust assets will ‘look and feel’ more like that person’s assets because they are in control and can choose themselves or their family members to benefit from the trust.
The exact entitlements of a beneficiary will be set out in the trust deed.
Appointor/Principal/Guardian
In addition to the role of trustee, the trust may have an appointor/principal/guardian. This role is optional and can go by many different names.
Your trust may not have one (or it may have all three!).
The appointor (or principal or guardian) typically has the power to: remove the trustee of the trust; and/or consent to the exercise of certain powers of the trustee.
Ultimately, what powers this role has will be set out in the trust deed. For tailored advice on family trust succession, contact us for an estate planning consultation.
