deed

Contract to Make Mutual Wills

A Contract to make Mutual Wills is an agreement between 2 parties (usually a husband and wife, but can be a same sex couple or a de facto couple) to make Wills in an agreed form.

Usually, they provide that the parties may not act such that those Wills don’t get given effect to, such as:

  • revoking or destroying the Will;
  • making a new Will; or
  • disposing of assets so that they do not pass to the agreed beneficiaries

without the consent of the other party (or the executors/administrators of their estate  if they have died).

Often they are put in place when the parties have had a prior marriage or marriages and there are children of the prior relationship/s and the current relationship.

The benefit of such contracts (or deeds as they often are) is that the parties can take some comfort in providing for the other during their lifetimes (for example by gifting their entire estates to each other in their Wills), but with the overall distribution of their combined estates (on the death of the last of them) passing as agreed in the Wills made pursuant to the document.

Where a party breaches the agreement (such as by changing their Will), that party (or their estate) may be sued by the other party (or their executors/administrators if they have died) for breach of contract.

Whilst mutual Wills can be an effective estate planning tool, they are not for everyone and they can cause unintended complications due to their inflexibility, particularly around subsequent marriages, children and unexpected events following the death of a party.

As with most things, there are also other options or alternatives to consider to get a similar result, including creating life interests in real estate or establishing trusts.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your estate planning needs.

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Trusts – who is who in the zoo?

TYPES OF TRUSTS

There are many different types of trust including those created by wills (testamentary trusts) or by the operation of law, but for the purpose of this article, we are referring to the usual types of trust structures that accountants and lawyers prepare for their clients to operate businesses, own assets and the like, including:
  • unit trusts,
  • family/discretionary trusts,
  • hybrid trusts.

Trusts are often used to ensure that the person or entity with the legal ownership of assets is different to the persons or entities that enjoy the benefit of those assets.

WHAT IS A TRUST DEED?

The Trust Deed is a document that governs the terms of the Trust and sets out the rights and obligations of the Trustee, the Appointor and the Beneficiaries.

SETTLOR

The Settlor is often a person who has started the Trust (often an accountant or lawyer that obtained or drafted the Trust Deed at the request of a client) by paying a nominal amount such as $10 to the Trustee. This amount is known as the ‘settled sum’. The Trust Fund is then added to over time.

WHAT DOES THE TRUSTEE DO?

The Trustee of a Trust is responsible for administering the Trust and managing its assets for the benefit of the Beneficiaries. The Trust can only operate through its Trustee (one or more people or a company)

There are many duties that affect how Trustees can fulfill their role. Many of them are set out in the Trust Deed but there are also legislative provisions that apply, such as those set out in the Trustee Act.
Some of the duties include keeping accurate records, acting in a prudent manner as regards decisions, not mixing Trust assets with the Trustee’s own assets (which is why a often a company is set up to be the Trustee and do nothing but be the Trustee) and not using trust assets for the trustee’s own benefit. This is often one of the reasons a special purpose trustee company is used.

WHAT IS AN APPOINTOR?

The Appointor is the person with the power under the Trust Deed to remove a Trustee and appoint a new Trustee. They, therefore, ultimately control the trust.

Usually, changing the Trustee can be effected at any time by the Appointor executing a deed to remove and appoint a Trustee. Often the Trust Deed allows for the change to be effected by a person’s Will.

It is common for the Appointor of a discretionary family trust to be a parent or sibling and is often 2 people (or in the alternative, there is a Primary or First Appointor and a Second or Alternate Appointor that can act if something prevents the First Appointor from acting).

WHO ARE THE BENEFICIARIES?

In the types of Trusts we are talking about in this article, the Beneficiaries are those that are ultimately entitled to the benefit of the Trust. For Family/Discretionary Trusts, the Beneficiaries are not stated specifically but rather, for asset protection reasons, they are expressed as a class of potential beneficiaries that the Trustee can choose from (but is not obliged to – the protection arises as there is no specific share they are entitled to – it is in the Trustee’s discretion).

Often, the class of potential beneficiaries is very wide and includes children, grandchildren, grandparents, siblings and other trusts and companies which those people may have an interest in.

In the case of a Unit Trust, the Beneficiaries are the unitholders -the unitholders are entitled to a defined/fixed share of the Trust’s assets and income.

For asset protection and income splitting/tax minimisation reasons, often the units in a Unit Trust are owned by a Discretionary Trust.

FURTHER INFORMATION

Trust law is an extremely complex area and it is important to ensure that you understand your rights and responsibilities in relation to any Trust you are involved with or may have an interest in.

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, structuring or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Trust & Superannuation Deed Amendments

Do you or any of your clients have a family/discretionary trust, unit trust or self-managed superannuation fund and want to change the deed?

Often the change is to remove and replace a trustee with a new one. In other situations, it may be changing a class of potential beneficiaries, dealing with the power of appointment, bringing forward the termination date or changing the trustee’s rights and/or obligations.

Care needs to be taken not to vest the trust or to cause a resettlement, which can give rise to unintended consequences, including:

  • CGT and
  • stamp duty.

There is no real “one size fits all” solution. Deeds can vary greatly as to the process and requirements.

McKillop Legal can assist in reviewing the relevant Deed/Rules and drafting an appropriate document to give effect to the required change.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.