Changing the trustee of your family trust can trigger a range of issues – so many, in fact, that partner Scott Hay-Bartlem has produced a series of six ‘It Depends’ videos to cover the tricks and traps for advisers and their clients.
In the second video in the series, Scott talks about the method you use to change the trustee of your family trust.
Welcome to this edition of It depends, which is another in our series of ‘Should I change the trustee of my family trust?’
Should I change the trustee of my famliy trust?
So, this is the starting It depends. We’re going to look today at how you change the trustee, because sometimes that informs whether you can or not.
How do I change the trustee of my family trust?
Well, second, it depends for the day. I’m going to even use my other saying read the deed, read the deed, read the deed. Because to change the trustee of a family trust, you have to follow what the trust deed says and do exactly that. Or the change of trustee could be ineffective.
What do trust deeds usually say is the process for changing a trustee?
So, there’s a few different ways you can change trustees of family trusts. Often for family trusts, there’s a role called the principal or the appointor, and that person’s job is to remove and appoint the trustee. So, we need to know who the appointor or principal is. If they’ve died, how that’s passed down the line, and how they do it, by deed, by writing on the side of a cow, by sending a text. You need to follow that process exactly by knowing who they are. Some trust deeds say it’s up to the trustee to appoint and remove trustees. In that case, you need to do exactly what that says and it is the existing trustee who will do the appointing. And if the existing trustee or trustees have all died, probably their executors. But the key thing is, follow what the deed says exactly.
What if there is nothing in the deed?
So, some trust deeds actually don’t have anything or provision that doesn’t actually work or maybe the person has died and there’s no fallback. In that case the Trusts Act of every state has a fallback position and generally they allow the trustee or the executors of the trustee to do the appointing of the new trustee to replace the trustees who aren’t there anymore.
What if I don’t follow the process properly?
If you don’t follow the process properly, you probably haven’t changed the trustee. That means that likely the old trustee remains the trustee or you may not have a trustee. Something we can fix if we find it early enough in lots of cases. But it’s really important to get that right. It may affect a whole lot of decisions down the track after that change of trustee didn’t happen properly. Now, there is lots of stuff to think about when changing trustees. That’s why we have a series.