Today we’re talking about succession planning with the one and only Terry Waugh.
This is a pretty big topic but we’ll be focusing on areas such as:
- What is succession planning and why should we care? (02:22)
- What are some of the available options for succession planning? (04:19)
- Wills (07:06)
- Testamentary trusts (13:31)
- Succession planning within companies (20:52)
- Superannuation – who gets it when you die? (24:15)
- SMSF – what are the key differences? (28:42)
- Life insurance inside superannuation (39:30)
- How to protect your kids in case you die (31:01)
- How much do these structures cost? (33:27)
- Podcast – 46. Terry Waugh – Structuring
- Website – Structuring Lawyers Pty Ltd
- Podcast – The Structuring Podcast
- Facebook – Aussie FIRE Discussion Group
- Forum – Property Chat
Great info from Terry and food for thought. One question on trusts that came to mind when you spoke about the 80 year duration, if you relocate to another state do you have to set up a complete new will to comply with your new states law or are they portable between states?
Trusts don’t move. They are set up with a jurisdiction nominated in the deed or the will – usually. If there is non nominated there is a rule from the Hague convention that determines jurisdiction. I can’t remember off and, but think it might the jurisdiction in which the trustee is located that determines the jurisdiction of the trust.
but you also have to consider the location of the assets. Property in NSW with the trust having a SA jurisdiction is possible but NSW laws will apply to the property.
No need to do anything if you or the trustee move to different states though.
Mate you’re doing a fantastic job
I am a lawyer with 35 years experience
Love your podcasts
Thanks a lot Mark 🙂
Great quote from Terry: “It depends how far you want to rule from the grave” – I’ve had mixed feelings around the idea of trying to control how your ‘legacy’ is spent. The duality of wanting your kids to do the right thing vs the overhead of specifying through legal instruments what they can and can’t do.
I think having the structure in place to protect you while you are alive can be important but trying to define via legal structures what your descendants can and can’t do feels overly controlling. Better to invest the time and energy into educating the next generations on having positive financial attitudes, prioritiese educating them – and if they have a different balance / priorities to you, so be it. Let them live their lives.
If you still want to create some form of ongoing legacy, carve a portion of your wealth out for that purpose – donate to causes you think are important.
Great points Ben!
Another great episode Matt and Terry. I got so much out of earlier episodes with Terry, and this is another great episode.
In terms of costs of operating trusts (whether Family or Testamentary) – as you discussed, accounting costs will depend on the complexity of the trusts you’re operating, but if you’re using ShareSight, and your trusts are invested in a typical FIRE ETF portfolio, you might find that you can actually complete your Tax Returns yourself. If you’ve set up a family trust, and this is part of your succession plan, and your partner or heirs get involved while you’re still around, then there may not be that much need for them to start operating testamentary trusts as most of your assets could be in the existing trusts that have been operating, and that they’re already familiar with.
Keep in mind the trustee should read the deed or the will in regard to “you might find that you can actually complete your Tax Returns yourself”. Many trust deeds require the trustee to use an accountant to prepare the tax returns of the trust, and doing it yourself might result in a breach of trust.
Taxation of trusts is very complex and I don’t understand it all myself and probably never will. There are also many related issues to get advice on such as family trust elections, franking credits, reporting requirements, trustee resolutions and strategies etc
Hi Terry, how much power do trustees have? If a will states a beneficiary can obtain their inheritance from a testamentary trust at age 25, can dual trustees agree to distribute to a beneficiary earlier (this was not specified in the will)?
Can a trustee just resign after acting for a number of years and leave a single trustee in charge, or do you need to see a lawyer and get a new trust deed set up?
Can a trustee who steps down nominate a beneficiary (over 18 years) as a new trustee?
Trustees have lots of powers. But if a beneficiary is absolutely entitled the beneficiary can demand title at 18 and the trustee cannot resist. This is known as the rule in saunders v vautier. If they are not absolutely entitled the trustee would have to follow the will and couldn’t transfer early without a few issues unless the trust allowed for it.
A trustee can resign. No need for new deeds. (if a trust under a will it is not a deed either)
A new trustee can only be nominated by the person with the power, or the Supreme court. A power of appointment is needed. This could be held by the beneficiary.
It all depends on how the will is drafted.
Thx Terry. So if investments within the trust are in the names of 2 trustees, can one trustee resign without going to a lawyer? Some of the accounts under the trust have 2 to sign.
Yes one can resign. Accounts will need to be changed into the name of the remaining trustee and the bank will require evidence of the change or resignation. If there are loans then the remaining trustee will need to reapply.
Great pod. I wanted to ask if the children are adult children and therefore they are taxed as adults anyway is there a need for the TDT? No blended family or second partners. What are the tax benefits of a TDT with adult beneficiaries whether it’s a spouse or adult kids?
Good question Catherine.
Any chance your children will have children? Grandkids can be beneficiaries and can be taxed at adult tax rates as can more distant family member children – even non relatives too if you wish.
Plus the trustee has flexibility as to who to distribute income to. This wouldn’t be possible if you just left to your child directly, they could invest this but couldn’t split the income generated from the investment whereas they could if they controlled a TDT.
Plus you have the asset protection benefits on bankruptcy, loss of capacity and family law (to an extent).
Great pod – very interesting and complex questions discussed!
One thing I wasn’t entirely clear on: if your minor children are the beneficiary of your super (not via a TDT, but just normally) would the income they receive from that inheritance still be taxed as an adult, or does that only work via a TDT?
Minor children are generally not taxed on receipt of death benefits from their parents super. If it goes into an open class TDT it will be taxed though as non-dependants can benefit. This would generally be 15%.
But then the income from the investment of the death benefits needs to be considered. Inside the TDT this income is excepted trust income as it derives from a deceased estate and so it can be taxed at adult rates. If super received directly its earnings won’t be though.