What are the differences between Single and Multiple Testamentary Trusts in a person’s Will?
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Hi, it’s Richard Dawson, partner with OMB Solicitors. Today, we’re continuing our five part series on testamentary trusts. Today is part four of that series, and we’re going to be talking about the difference between a single testamentary trust versus multiple testamentary trusts in a person’s will.
Like most estate planning, there is no correct approach and it must be dealt with on a case by case basis. For example, use a will maker who is leaving his estate to three children who are going to be the beneficiaries of the estate.
The first question the lawyer needs to ask is, is it appropriate to use a single testamentary trust for the three children? Or if circumstances permit, would it be more appropriate that three separate testamentary trusts be used, one for each child?
In the case of using a single testamentary trust, it would be appropriate if all of the children were under 18 years of age and there was a trustee or preferably co trustees managing the testamentary trust on behalf of those minor children until they turned a responsible age, usually 25. Another reason for using a single testamentary trust would be to protect the assets going into the trust, which we call the trust fund.
Now, this might consist of shares, cash, a property portfolio, and the family home. Where there is risk of a child entering into a divorce or a family relationship breakdown situation, the single trust offers the most robust protection in that situation because there is a great deal of protection from the family court because there is more than one primary beneficiary, namely the three children and their children who are all beneficiaries of that one testamentary trust.
Another reason you might use a single testamentary trust is where the will maker wants to pass it to the next generation, but also for them to act as custodians for future generations, and this would be quite often the case in very large estates.
Another circumstance where a single testamentary trust is appropriate is where there is one large asset which is difficult to split. For example, you might have the family home and a business premises which earns rental income, it’s very difficult but not impossible to split that real property arrangement.
Moving to circumstances where we might use a multiple testamentary trust arrangements, that is, one testamentary trust for each child. Circumstances which the lawyer would need to consider would be the geographical location of the adult children.
For example, if you had one child on the Gold Coast, one child in Melbourne, and one child in London, it’s very inappropriate to have one testamentary trust if those three children were the trustee, it’s very impractical. Each of those children will always have a different risk and investment strategy, depending on their personal circumstances.
So, that has to be factored into consideration, if one was a high risk investor and one was a low risk taker, you’re going to get conflict. So it might be appropriate in that instance to set up a multiple style testamentary trust will.
One practical but quite often overlooked consideration is the relationship between the children. Whilst we hope our children get along with one another, quite often they don’t, and this will create legal and practical issues and complications down the track if the siblings fight amongst themselves.
You also have to look at the beneficiaries themselves, the children themselves and their children and you might have a happily married couple with three children in the white picket fence scenario versus the other child who might be a bachelor and loves to roam the world, traveling at will. So there’s different styles of trusts being set up for those different types of children.
Probably lastly, and most importantly, is the various controlling mechanisms for that multiple testamentary trust, and that will depend on the child themselves. You might have, for example, a very responsible, capable, and intelligent child who can act as a sole trustee of their own trust with little or no risk.
Then you might have the wayward child who is likeable and loveable but probably needs a little big brother looking over his shoulder, therefore, you would have a co-trustee arrangement. For example, that child and maybe a sibling, or that child and an independent trustee, such as the family lawyer, or the family accountant, or a trusted aunt or uncle, so to speak.
The third situation is where you have the spend thrift beneficiary or the beneficiary that has various troubles like alcohol, drug addictions, or a gambling problem, or has the very high risk of entering into a family relationship breakdown down the track.
In that instance, you would strongly consider not having that child as a trustee at all and have them have that trust arrangement with two independent trustees, for example, a brother or a sister, and an independent, experienced trustee like the family lawyer or the accountant or both.
So, as you can see, there are many different arrangements that can be put in place with testamentary trust wills, essentially, it depends on a case by case basis. If you’re planning to come in for an estate planning meeting, expect to put aside at least an hour because they’re the type of questions that I’m going to ask you about your family dynamic so that I can recommend to you the most appropriate testamentary trust will for your family and future generations.
Thank you and I look forward to speaking to you at the next session, which will be the last series of our five part series on testamentary trust.