If you have a Family Trust
as part of your business shareholder structure, it’s imperative to recognize that proactively planning for the future management of the Family Trust is a crucial, yet often overlooked, aspect of your overall estate plan.
While serving as the Trustee, you retain decision-making powers over the Family Trust. However, a time may arise where this responsibility needs to transition to a new Trustee. This transition could be necessitated, for instance, by your inability, whether mentally or physically, to continue oversight of the operations of the Family Trust and its assets, or in the unfortunate event of your passing. Contemplating in advance who succeeds you as the controlling Trustee should be an integral part of your overall estate plan, and not left to the last minute.
The Role of the Family Trust Trustee
Before addressing this question, however, appreciate that there is a crucial distinction between the wealth controlled by the Family Trust, versus the wealth that remains under your personal control. Your personally controlled wealth will be managed through your Will or other estate planning mechanisms. In contrast, the Family Trust’s wealth will be overseen by the successor Trustee.
Then consider the succession of the Family Trust. Keep in mind that most trust structures empower the successor Trustee to exercise their discretion to decide who among the list of beneficiaries will benefit, and distributions are not usually required to be equal.
Important Considerations when Naming your Trustee
When identifying the ideal replacement for you as the successor Trustee, consider unique issues such as their ability to responsibly manage Family Trust assets impartially, without favoritism or nepotism. Consider their knowledge of managing wealth, and the particular needs or circumstances of individual beneficiaries. If they decide to completely wind up the Trust, consider how the assets should be divided among the beneficiaries.
Leaving written guidance for the successor Trustee in the form of a Letter of Wishes is often advisable. This document can outline instructions, in advance, such as ensuring equal support for all your children, or providing more support to one with particular needs. However, it’s crucial to recognize that these instructions are considered “wishes,” and the successor is not legally bound to follow them.
Alternatives to Naming a Trustee
If the prospect of leaving distribution decisions in someone else’s hands is uncomfortable, seek tax advice regarding the option of winding up the Family Trust and distributing its assets to beneficiaries, before your passing.
In jurisdictions like British Columbia, where probate fees are substantial, keeping assets within the Family Trust shields them from these fees, as well as potential challenges to the Will. For these and other reasons the Family Trust can be an essential part of your overall estate plan. This underscores the significance of reevaluating and proactively planning for the succession of your Family Trust, while the opportunity is still at hand.
If you have questions about your estate plan or would like to talk to a lawyer about how your wishes can be put into effect, contact Leah Card or a member of our Wills & Estates Team – we’re here to help.