Tara (00:56):
Hello and it is episode four of the Art of Estate Planning Podcast and today we are actually talking about one of my favourite topics, which is about trusting the trustees of a testamentary trust.
(01:12):
So how to choose and structure the trustees when you are setting up your will with testamentary trusts. And the reason why I wanted to talk about this is because it actually came up in one of our workshops where we were presenting on testamentary trusts and in the chat someone was sort of asking questions about what happens when the testamentary trustees abuse their power, when should children get control of their testamentary trust? And it just wasn't quite the format to have an in-depth discussion. So I'm really glad that we have got a whole episode to talk into this topic. And before we dive into it, I just want to say hi Carrie and welcome.
Carrie (02:00):
Hey Tara. I'm excited to talk about this today. I've got my little notes written beside me, so ready to share my infinite, I won't say wisdom, maybe nonsense, but I think it is something that when you are practising and seeing clients day in and day out, it is a very real concern for people how they actually pick the people and trust that they're going to do the right thing, particularly when it's minor children. I think it can be different when it's an adult child. It's different considerations. Are they going to spend the money wisely on themselves? They're the only person they're going to let down effectively. But when there's minor children involved, so people that don't have a voice, I think it is a very, I dunno, it's a scary conversation for a lot of people.
Tara (02:47):
Absolutely. It's huge and it can really make or break the effectiveness of the testamentary trust structure. One of the things I think you and I are both singing from the same song sheet when it comes to guiding clients with this, I know there are some estate planning lawyers who just say, will you tell me who's filling in the role of executor and trustee? And I'll document it. I think you and I are both from the school of thought that a real large part of our role as the lawyer and advisor is to actually guide the client on making this decision and stress testing it and really spending a lot of time on getting this decision right, because it's so important to an estate plan when you have a testamentary trust.
Carrie (03:32):
Absolutely. I always talk to clients about it. Obviously it's their choice. It is not our job as lawyers to tell people they have to make a particular choice. But I do think that clients often change what their preconceived notions are about who should control the money for the benefit of the beneficiaries based on legal concepts and things that we have found in our experience work in practise. So I usually split my recommendations between number one, what I call the legal rules and what I call my rules of thumb, the legal rules being the things that are going to have legal ramifications if they don't consider those things. And then the rules of thumb being things that I found work in practise, but obviously they are totally at will to ignore everything I'm saying there. So I'm happy to go through those, but I just thought I'd put those out there first. But those are the ways I break up recommendations to clients is that here's the legal stuff and here's some examples of practical effects.
Tara (04:31):
Yeah, absolutely. You can give the guidance and say, look, you can't have more than four trustees acting at once. They can't be bankrupt, they shouldn't ideally be living overseas, but that doesn't help them make a choice. They still get really stuck. And we also have this philosophical or values-based decision I think around the role of the trust. And so to give you everyone a bit more context, basically we were coming at different sides in this workshop about, okay, you've got minor kids, both parents have died and there is a testamentary trust set up for those minor kids with a whack of money in there. And you need someone to manage that money in the testamentary trust acting in the role of trustee until the children reach a certain age. So do you let those children basically take over control as soon as they turn 18 or 21 and boot out and force a removal of those independent trustees and let the kids take control right away? Or do you actually give the trustees more power to decide when that transition of control happens rather than a forced removal at a certain age or trigger point? It's actually up to the people in power, the trustees to actually work when they are ready to step down based on the situation at hand where the beneficiaries are at. So that was kind of the debate, do we basically, how much power do we give to the trustees and how do we protect against trustees abusing that power?
Carrie (06:15):
I think so you're right, there's sort of two points in time that we're talking about here. The initial trustees of any testamentary trust and then the kind of continuing or the long-term trustees for any trust one such are adults. I mean when we think about what you said before about values based, I think that's a really good starting point for clients. And that's usually what I say to people. Number one, the only requirement of a trustee really when you get down to the absolute nitty gritty is that you trust that person. That's why they're called a trustee. I think that's a great thing to say that you must trust them. Now I'm from the country and so unless you've got three generations in the cemetery, in the local cemetery, we don't trust anybody. We don't know. It's actually a really interesting debate to have around that trust concept.
(06:59):
But the way that I kind of work back from there is sort of saying who in your network, and that includes family and what I call family of choice. So close friends that aren't related by blood who has the same values as you do around money, around what's right for your children. Because I think people try to always go with family, but sometimes family don't have those same values. The only thing you share is DNA. So I think going through that exploration of starting at the very base level that you must trust that person and then working back and if they're having trouble saying what sort of values, who in your network actually has those same values as you?
Tara (07:38):
Yes, Carrie. And now there's an amazing point. One other thing that sometimes people get confused on is what level of financial sophistication do the trustees need? And I've always taken the position that as long as the people you choose to be the trustees have the same values and you know trust them to act in the best interests of the kids, it probably doesn't matter how sophisticated they are financially, they need probably a base level of understanding of things, but we can outsource that financial sophistication. You can make sure that they work with a good financial advisor, a good accountant, whoever, to sort out everything that needs to happen and get the investment decisions and the right around of money being available as income and capital. But you cannot outsource that care factor for the kids.
Carrie (08:42):
Absolutely. This is so important. Where that letter of wishes comes into play is that if you trust that person, you just write in a letter of wishes, go and get advice from x, Y, Z in relation to management of the trust. This is my person I've working with for X number of years. They will guide you in the right direction. I've recently re-up, updated my will and my will leaves a testamentary trust for my brother and his children. And I trust my brother with so many different things. He's the person I'm closest to in the world, but he's terrible with paperwork. And so I think that he doesn't have a high level of financial sophistication. And David, I'm sorry, I hope you're not listening, but I trust him inherently. But for me that line was, I dunno if he would do the paperwork as well.
(09:31):
So I think they don't have to have a high level of sophistication, but you do have to trust that they will do some of those obligations. So that's when we're talking about, one of the things I often talk about is one of the rules of thumb I use is having more than one person. There's different reasons why. Number one is this very scenario where they bring different things to the table. My brother is bringing that family knowledge and that trust and those values of our family, and then I've got someone beside him for multiple reasons, but they're the person that I know is going to do the paperwork. So when we're talking about who we trust to manage funds for the benefit of the people that are the beneficiaries of the trust, I sometimes find that discussion around that kind of financial acuity thing is quite strange. Really the base value is are they going to share your values and are they going to do the work?
Tara (10:20):
Yes, yes. Great. Great point. And I'm so glad you brought up the idea of having two, I said before you can have up to four, four is probably too many cooks in the kitchen, but do if that suits your strategy. But I'm a huge fan of having two or two or more for a couple of reasons. Firstly, as you said, you share the burden and the responsibility and you bring in a, it elevates the quality of decision making I think where you have to have two people discussing and justifying their position to each other. I think it also brings in inherent checks and balances. So another issue or danger zone in this type of scenario is where one of the trustees is included in the beneficiary classes of the testamentary trust. So the way that at the art of estate planning, we like to do our testamentary classes.
(11:21):
Testamentary beneficiary classes is really similar to a family trust where you have the primary beneficiaries with the sort of lineal descendants and the main beneficiaries, but the secondary beneficiaries can include that extended family, nieces, nephews, aunts, uncles, cousins, parents, grandparents, et cetera. So if you happen to have someone who is a trustee and also falls within those discretionary beneficiary classes, it can increase the risk a little bit that they prefer themselves when exercising the discretionary power. I will just put a big asterisk there because I think that risk has decreased somewhat following the Rees decision that came out I think a few years ago now, previously I would've said that's a huge concern that we really have to watch out for now that we've got Rees and the trustee has to give real and genuine consideration to all beneficiaries and sidebar, they always had to do that, but it's much more front and centre and everyone's a lot more focused on satisfying that duty of giving real and genuine consideration.
(12:34):
And we have such a line of cases now where trustees have fallen foul of that obligation. I think it's just front of mind for everybody that I think that concern is a little bit more reduced, but even a ree type action is a retrospective action. So I always prefer to set it up so that a trustee can't do the wrong thing in the first place. So all of this is to say that's a bit long-winded, but all of it to say is if you have at least two trustees acting together, it can really eliminate that risk of them preferring themselves when exercising discretion for distributions of income or capital.
Carrie (13:20):
Yeah, it's interesting. I know Tara, someone close to you said we don't argue enough. My husband said that. Sorry, I didn't want to point him out, but it's hard to argue with someone that trained you, so the only way you know how to do it is doing it the way. But I mean I want to throw in the ring, you said before about four is too many. I think there are some circumstances where you do kind of want a board of trustees, so to speak when you're dealing with huge groups or a massive amount of wealth. And we're talking about complex trustee, either individuals or corporate trustees. There are some places where having a series of people works, but obviously what we're talking about in these scenarios are more your closely held sort of families. I think that the two is that balance between too many cooks and not enough cooks.
Tara (14:17):
Yes, I think, yeah, I agree.
Carrie (14:20):
But I do think that there are places where a sole trustee and four trustees might be totally applicable, but for middle Australia so to speak, for the average vanilla family kind of stuff, that's why we're talking about that two people sort of concept.
Tara (14:36):
Yes, totally Carrie. And I have to say my approach with estate planning is what is going to work for those most common demographics? And there's two major ones. There's the couple with young kids and then there's the baby boomers, and then we sort of try and work in rules of thumb and parameters and if this then that kind of logic. But there is so much scope to be flexible and creative with the trustee role, corporate trustee, individual trustees, how many the appointer role. So you really can have a blank page and craft your own perfect structure if the situation calls for it.
Carrie (15:19):
Yeah, I think I lost my train of thought there. Had a really good thought, Tara, and that's one of the negative impacts of having a DHD is that you're like, don't interrupt because your therapist tells you not to interrupt, but you have this great idea. So I'll park that little part of my brain and come back to it, but oh, there it was. See I come back just like yesterday riding a bike. So I think that the practical effects of having a large number of trustees as well, I went down to open a trust account to transfer my father's trust over into my name as sole trustee. Can you imagine trying to get two trustees in a bank branch at the same time, let alone three trustees, four trustees, things like when decisions have to be made. I used to say it probably doesn't matter a huge amount if they're overseas, we'll put aside a big asterisk on this from a tax perspective, but if one of them lives over in France and there's three of them, I used to say it probably didn't matter too much because with modern documents we can kind of send them everywhere post.
(16:22):
I'm not saying that anymore because it took such a huge amount of time for original documents to be ferreted around the country, let alone overseas that. I do think that, again, when we have multiple people ferreting around original documents that require wet ink potentially, it just, it's so much harder if it's multiple people, like if there's three, if there's two, it's a little bit easier. And that's that balance between administrative ease and making sure that there's more than one person overseeing what happens.
Tara (16:54):
Totally. That's it. We have to think about the practical reality of the structure that we're setting up to because even if it's the most beautiful testamentary trust structure on paper, if people can't live with it, they're going to be inclined to wind it up and go get the assets out of the testamentary trust, which we don't typically want to do because the testamentary trust offers such beautiful asset protection and tax flexibility. But one thing I did want to say, my philosophy with testamentary trust in case it isn't clear, I just want to sort of ride it in the sand, is that I see them as a long-term wealth accumulation vehicle for the families that we are setting them up for. So not a matter of, well this is a holding structure until the kids reach financial maturity, I want them to last for the full 80 years from death.
(17:47):
The idea is that this is a structure that is going to set up these kids for long-term wealth accumulation. So I think when you come to it with this philosophy, that really impacts on your decision making as well. And then on the transfer of control plan, if you're thinking, yeah, this is not just a short-term structure, but this is a long-term vehicle, we're going to have the wealth in there for a long time. Before we dive into transfer of control, I just wanted to share what I've done under my will just as to round out your points, Carrie, around the idea of having two. So under my will, I have nominated obviously my husband to be the trustee, and this is for all financial control roles. Actually, I will just say this. I think when I'm talking to a client, I try to focus on financial controllers and that encompasses executives, trustees and appoint.
(18:47):
And rather than sort of nitty gritty diving into what each role does necessarily just talk in broad principles around financial decision making first to try to nut out who in the friendship and family and advisory group are the candidates that we should consider. And then we can think, okay, well what's the nuance of each role and do we need to tailor that or make tweaks between each role and who's being appointed? But in my simple situation, I want continuity across all of those financial control roles and I don't necessarily want my family members having to worry about which legal hat they're wearing. If something happens to me and my husband, then they're in charge and it's up to the accountants and the lawyers to be like, okay, well you are doing this in your role as executor or now you're doing this in your role as trustee, but I want them to just know, okay, we are stepping up to the plate.
(19:53):
So for our financial controllers, obviously it's my husband first for everything. And if something happens to both of us, we've got our two little boys. So our financial controllers are going to be my dad and my husband's dad together. They're both in their sixties. So then we've put in a backup plan where my brother will fill my dad's vacancy if he can't do it or wants to step down and my husband's brother will fill his dad's vacancy. And the idea is we've got two people at all times and we've got a representative from each side of our family and we are really blessed that we have a great relationship with both sides of our family. So we didn't want anyone to feel like they're in the dark and we wanted the idea of a representative from each side. And I still think whether it's family members or close friends or something, I do like the idea when you've got couples coming together that maybe having a representative from each sort of respective side coming together can really help with just everyone generally feeling at ease.
Carrie (21:09):
I call that that's one of my rules of thumb. I call it sides of the family. And when I say family, I say family of choice as well. As you said, not everybody has the kind of stock of family to choose from. I think that the sides of the family works for a few different reasons. I explained to them that if there are a couple that your marriage is a union of two different value systems, which came from somewhere. And so if you're picking from sides of your family, you are each bringing something different to the table for the benefit of the children the same way that your marriage has. And the second thing is that I say it's a little bit depressing, but bear with me that if something happens to the entire family unit, once the testamentary trust is established, that trust will have to be separated between the two families, ideally under the plan if that's what not ideally don't at me. If the idea is that each side of the family gets a division of the trust, if all of the people aren't here in the immediate family, if you've got totally stuck towards one side of the family, they can do whatever they want. If you've got a representative from each side, they make sure that each side of that family has a voice.
Tara (22:14):
Yes, so true. We have to think about all the different contingency plans.
Carrie (22:22):
I just want to jump back quickly to that point that you made about different hats and that concept of selling it to the client, so to speak as a financial control role, and then working back into the actual nuances between the roles. One of the ways that I explained that to the client, and by this time knowing me, I've dropped a lot of humour and tried to make it quite light. So this is going to sound really bad, but it actually visualises, it helps them visualise. What I'm saying is that I'll draw, I said, if you imagine life like a timeline, and I draw a little person at the start and then I draw a line and I draw a little hexagon, which is the estate, because earlier on my slides I've drawn the estate as a hexagon. I'll draw, sorry, I'll draw a little tombstone, then a little hexagon and then a little triangle for a trust.
(23:11):
And then I'll say loss of capacity is usually very close to the tombstone. Okay. It's very uncommon that someone loses capacity and lives for a really, really, really long time. So if we think about that timeline and those sort of three positions being very close together, if it's the same people from the loss of capacity over the tombstone into the hexagon, so the estate phase, and then from the estate phase over into the triangle and the testamentary trust, if it is the same people, it is so much easier for a practical perspective, including things like paperwork and costs with people getting across their roles. If it's just the same people, we're not having to be beholden to decisions that the earlier people made. So we're actually all on the same page about the way things have been managed. So I think drawing that timeline for people for our visual learners is really helpful to show them that those three are really close in time.
Tara (24:11):
Yes, amen. I love that, Carrie. I just think that makes so much sense because clients often their natural tendency is to think who's going to be the guardian of the kids
(24:26):
And appoint the trustees as the same as the guardian of the kids, and who should I have as my medical attorney to turn off the life support, for instance, and then my financial attorneys will be the same. But I agree with you. I think let's look at the qualities we want in our financial controllers and that those qualities are really different to the qualities that we want in our medical and lifestyle guardians and the guardians for our kids. So I agree, totally agree in having different people for medical and lifestyle attorneys or guardians, guardians of minors, but keep your financial control roles together if it makes sense. Now, not all the time, but I think for a lot of cases that really simplifies things.
Carrie (25:14):
Yeah, I think one of the common questions that comes up, particularly around the guardians, I want the guardians to have total control of the money. And again, I sort of explained about the values being very different, but they sort of then say, oh, doesn't it mean that they then have to go and beg for money from someone else? And I sort of explained that practically the way that that plays out is very different than how you think about it. What you usually find in those scenarios is, so let's say you are the trustee and I'm the guardian of my brother's children. I'm not having to come to you three times a week begging for money. What you'll probably agree is, Hey Carrie, I'll give you up to $500 a week to spend without any question and here's a card to use on a day-to-day basis. If it's over that amount, get in touch with me. So it's not like that person is having to constantly go and grab money from the trustee. They can have a pre set arrangement as to how the way that funds have to be spent, like a card with a limit on it, those sorts of things. So make sure that your guardians aren't literally out of pocket or having any issues, but you've still got the right people in charge of money and the right people in charge of children.
Tara (26:25):
And that structure brings in those inherent checks and balances too, right? Because if you've got the people who care and have the interests of the children at heart in charge of the financial controllers and obviously the guardians, you would assume the same. They're all working towards that common goal, but we've just got accountability inherent checks and balances there to make sure everyone is doing the right thing and no one is reaching too far into the tin or abusing their role. So speaking of abuse, I think one of the fears that people have is that trustees are going to hold on to control of the trust for too long and not empower the children to control it once they reach a certain age. So where do you sit on that? What's your personal view? Because I think people listening, it could be informed by your practical and lived experience and what you've seen go well or what you've seen go poorly. And if you've got a lot more of a litigation type practise, then you might be inclined because you've seen things go pear shaped.
Carrie (27:39):
So the position that I know that we talk about, and I'll share this now for the group to save you with my voice being so silk in smooth, and then I'm going to come back to what I think plays out practically. So I'm pretty sure Tara and I adopt the same approach that ideally we like to suggest the age with children, which children should take control of their trust in a letter of wishes. In that way, let's just say you're write 25, it's not binding on the trustees at the time because we don't know what's going to happen or what 25 is going to look like for that child. If at 25 they're dating a deadbeat dead, they've got a drug addiction of some sort, they're terrible with managing money. If it's over in the letter of wishes, the people you've appointed have a little bit of discretion to say, oh, we know that X, Y, Z wanted this time, but we think this one kid might need an extra 12 months.
(28:34):
Let's just wind it back a bit. If you've written that in the will, it absolutely must happen. Okay. And there is no wiggle room. So that's something that's sort of the general position. Obviously that doesn't kind of suit all families, but I think it's a talking point for the clients. What we are seeing though now, Tara, is a lot of those letter of wishes documents being instructive in court cases. So to the extent that it got to the point of litigation that the letter of wishes can actually be submitted as evidence sometimes depending on a few moving parts, like the contents of the letter of wishes, whether it's referenced in the will or not. So there are some situations where I think that things gone wrong, that sort of document can be of evidentiary value. I also think too that in the event that it does get to the point of litigation, there's two sort of things.
(29:32):
I mean, number one, as beneficiaries, they can kind of take it to court for court oversight. And number two, there's actual case law that says that if children don't get control of their inheritance, it's akin to no provision and they could potentially bring an application out of time for an estate claim. So I think that there are ways for your children to still potentially get their hands on the funds. If your trustees do decide not to hand over control, it does come back really, really carefully to that point of picking the people that would follow your letter of wishes in whatever way you've written it.
Tara (30:11):
Yes, and I think the letter of wishes being able to be used as evidence in a court decision is helpful actually. I mean, what I personally am trying to avoid is the situation where there is a forced transfer of control that if everybody had sat down and known the situation that was going to eventuate, they would never have wanted it. So that's what I'm trying to avoid, where as you said, the child is 25, maybe they're going in the middle of a divorce, there is a bankruptcy application against them. This is unlikely it's remote. But if that's happening and then suddenly we've got a hardwired in transition of control happening as well, which totally messes up the divorce proceedings and exposes the testamentary trust assets to those proceedings, I don't want everyone to be in a situation where they just have to deal with that. So for me, I prefer to have flexibility and empower the right people. If you've done the work to make the right choice of trustees, I prefer to give everyone the flexibility than to hardwire it in. I feel like there can be real risks with the hard wiring.
Carrie (31:31):
I know you said before it's a remote possibility. I want to challenge that Jared listening. I know we're thinking about divorce and sort of bankruptcy at 25. A lot of young people in our culture aren't getting married at 25, but defacto relationships have the same property rights. And I don't know about you, I don't know what young person is going to be able to afford a home on their own. Okay. So I think we're about to see a very big change in, or very big increase in cases around 25 year olds getting an inheritance in de facto relationships. And those inheritance is being subject to this kind of discussion. So if your will says, my child gets control at 25 and at 25 they're in a defacto relationship, and that then might be considered as being property of that relationship, I actually think that incidence is going to grow mutually.
Tara (32:27):
Yeah, no, that's a really valid point, Carrie. I think the other thing is you can't underestimate the impact it is going to have on kids of losing both their parents at a young age when they're minor or if they're in their forties becoming a double orphan. When you are not financially mature, even if you have clients sitting in front of you, they're like, oh, my kids have got a really good head on their shoulders. This is such a disruptive life event. We can't know what impact that's going to have on the kids and what it will do to their readiness to take over the responsibility of a trust or yeah, are they going to go off the rails? Are they going to struggle in school? Is their whole trajectory of their life potentially going to change? And so for me, making a decision that forces those children to step into such an important role at a young age without the support system around them, that scares me a lot.
Carrie (33:40):
Yeah, I mean, I know plenty of people that had it hardwire in their wheels that their child takes control at 25 and as their child creeps towards 25 and now having to go and get their wheels totally updated to take out that 25 and either put it up or do what we suggest in the first place, moving it over to a letter of wishes. So that's another thing about hard wiring into a will is if you change your mind about that age, you have to go and see the lawyer again, sorry, you don't have to go and see a lawyer. You have to update the will again, you should go and see a lawyer, but you do have to update. That will again.
Tara (34:15):
And if you are sitting there as a trustee and the will maker has died and you are sitting there going, okay, it says the child takes control and I'm removed at age 21, but this child is not ready, what can you do? There's nothing that you can do to disrupt that hardwiring plan, right? I mean, maybe if the child's on board, then they can retire themselves right away and put you back in or something. But there's just your hands are really tied and we've all got those war stories of children who are financially immature, but over 18 blowing through their inheritance, right? It's a classic trope and there's a reason for that.
Carrie (35:05):
I say to clients when I talk to 'em about the reason why you do use a testamentary discretionary trust wheel is that at 18 your child gets an inheritance. And I mean, let's just say it's $2 million today because that's a little bit of super little insurance or property. That's kind of what the bottom level of a lot of estate plans are going to look like over the next 20 years. So I say to them at 18, I should not have been given $2, let alone $2 million. I would've spent it on a double bourbon and coke at the baron. So I just think that that concept of I trust my child, I was just saying they're a child, we don't know what's going to happen. I mean, we don't even know what adults are going to do really if they're one Perth, and though it's hard to know, but if there's two people, trustees sitting at the top between the two of them, they'll keep each other honest.
Tara (36:00):
And I just want to make an important distinction. We are not saying that the children can't benefit from the assets of the trust or the income of the trust. It's about the decision making around the investments, whether to keep the trust going, how distributions are made. And so Carrie, going back to your point earlier about, okay, you are 25, you are in a defacto relationship and you're buying a property and you've had that capital sitting there that has allowed you to enter the property market as a young 25-year-old. If you are the trustee of the trust, you're like, great, give me a capital distribution. Let's pull the money out of that trust, maybe wind it up, there's nothing left and I'm putting that into my share. Or we're buying the whole property with my spouse. Whereas if you have someone with a bit more wisdom or a little bit removed who is a trustee or co-trustee who can then say, well, why don't we do it as a secured interest-free loan to you?
(37:06):
So that way if there is a relationship breakdown or something else happens, we can still get the asset protection benefits of the trust. So that's just a very simple example of someone being a bit more mature, a bit more life experience, being able to just say, we can do this two ways and there's a smarter way to do it. We're still going to do what's in your best interest. And arguably this is more in your best interest. The money will be protected for the long term. And for me, that's the beautiful thing about testamentary trust. They give us that flexibility.
Carrie (37:43):
I just want one more thing on this topic because it's something we talked about in a hot seat that I think sometimes your clients need to hear that when we talk about the concept of a trustee abusing a power. I was in discussion with another practitioner, very highly regarded practitioner in Queensland about something I'd written and he said something to me, which just I've never, ever forgotten, and it's something I kind of talk to clients about now, is that trustees have these obligations, they're called duties, which they must always do whatever's in the best interest of the beneficiaries, and then the trust deed. So the rule book for how the trust is to be managed, the trust powers saying what a trustee can do. And he said a duty trumps a power any day of the week. So you might look at sometimes at these testamentary trustees and think, oh God, these people can do anything with the money.
(38:36):
I mean, technically, yes, they can do anything with the money, but it always must be applied to your beneficiaries towards their best interests. So I think that when we're talking about those concept of appointing people, they are still beholden to the terms of the deed and these higher obligations of doing whatever's in the best interest of the beneficiaries. So I think that we have to think about the planning element, but also calming our clients and sort of assuring them that there are these checks and balances. There are then also actions in court that your children can take if things do get real.
Tara (39:17):
Yeah, I totally agree, Carrie. I think it is always important. We never want to get to that situation, but yeah, it's not opens love free reign, is it?
Carrie (39:27):
Yeah.
Tara (39:28):
I had another point that I wanted to mention, and it's the strategy that I call the apprenticeship. And this is something I'll just say, what have I done in my will where I've got my structure with our dads and then our brothers? So we've gone with the letter of wishes approach where we are not wiring in any transfer of control other than the transfer from dad to sibling. And in terms of our children ultimately taking over control, if that situation eventuates, we've just put it in the letter of wishes. And for me, I trust that combination, the dream team of trustees, that between them, they're not going to hold on for too long and they're going to look after our boys. But I've also put in there some guidance for them to consider this apprenticeship type structure where, and I think it can be quite useful, particularly if you are having controllers who are getting a bit older in age and maybe don't want to do as much of the practical administration where we utilise the appointor role as a supervisor role.
(40:41):
So for instance, I've suggested maybe when my sons each turn 21, they can be appointed as a co-trustee with the existing independent trustees so that they can do their apprenticeship and they can learn the ropes, see what's involved, get their head around a trust, get their head around bank accounts and financial statements. Face it. This is probably the first time they'll be really exposed to any of that, but they're not appointed as a coap. So we've still got our independence as the appointor. So if the apprenticeship is not working out, if it's a disaster or for whatever reason, then the appoint can always reshuffle control so that they're just bringing and exposing the kids once they've reached 18 to what's involved without just dumping the responsibility on them. But our trusted people can still take back control, and there's a myriad of ways that you can structure that as well.
(41:48):
You don't have to have them as co-trustees. You could just do a straight transfer of those children to trustees whilst retaining the appointor role for a transitionary period. You can structure it whatever way you like. And that's what I love about the ability to have the trustee and the appointor role and the testamentary trust generally is that they offer a lot of flexibility. I do just want to also make one point that sort of popped into my head as I was saying about that when we have got this structure with the independent trustees, I usually just replicate the appointor role for them as well. If we don't need to have a separate supervisor through the appointor role, I just make the trustees and the appointor the same. So supervising yourself, the role almost becomes a little bit redundant at that time, but we haven't done away with the role altogether.
(42:45):
If we do need to bring in that supervisor role through the appointor, then it's there that we can take advantage of down the track. And remember, these trusts can go for 80 years from the date of death, so we might need it, but we are not racking our brain thinking, oh, we've got to have a trustee, we've got to have an appointor. I think that's too complex. So sometimes it can be simple once you've done the hard work about who's our financial controllers for the kids, just put them in as trustees and pointers. I can see you pulling faces, Carrie,
Carrie (43:19):
I'm just thinking you're so much classier than I am, Tara, because just sitting and saying apprenticeship and supervisors, I'm like training wheels and door power. You're using apprenticeship and supervisors. I'm like, Anna, training wheels.
Tara (43:34):
I love that. Yeah. Well, training wheels is a perfect analogy, isn't it?
Carrie (43:43):
Oh yeah. Very different. I've got a friend who's from the country who thinks I'm her classy friend and I'm like, man...
Tara (43:53):
Excuse me, I'm from the country too.
(43:55):
I'm not anyone who you are, but you are classy country. I'm classy, Tara, have people to think I'm, but I'm not. Well, thank you. I'll take that as a compliment. That's all I had. I mean, that's on my list, Tara. I think there's no magic science really when it comes to picking who we play in that role. And it's always got to come down to what the client is actually looking for, what their objectives are. And again, just reiterating that point that it is not our job to tell 'em, you must pick these people. The will has to represent the wishes of the test. Our guide is to tell them all our knowledge that we have about legal stuff and practical stuff in our experience and let 'em pick.
(44:40):
Yes, absolutely. But I do think you can provide a huge amount of value by guiding them, because a lot of people have never turned their mind to this. And they do need, I think, some support to work out that this is a really essential and important decision, give a lot of thought and weight to this. Here's some structures that might work. And basically I feel like we are sort of guiding or massaging them through to make this decision based on their values and who's available in their family group. And I also do really want to acknowledge for us as practitioners, our position on this will probably be heavily influenced by what we've seen in practise as well, and all those cases and matters that stick in our minds about what worked and didn't work. And I do just want to acknowledge that. And if you're sitting there going, don't agree, don't agree, that's completely fine, and send it in. We'd love to hear different points of view.
Carrie (45:44):
Can't wait till these go live, Tara, we get all these dirty emails.
Tara (45:45):
Am I kicking right?
Carrie (45:48):
Jared, sift through those emails, people finally disagreeing with us, Tara.
Tara (45:53):
No, but this isn't the Tara and Carrie know everything show. It is really a yes, it's it's a podcast. I ask Tara, thanks very much. I think we can so learn from everyone's experiences and different what has worked, because the reality with estate planning too, is a lot of the time we're setting this up and the idea is that our clients don't actually have to rely on them. So there we are not getting immediate feedback and seeing or hearing stories where things have worked or not worked is how we can then update our approach and our processes and our own beliefs around how to structure this. So I think that feedback is really valuable. I think,
Carrie (46:39):
Yeah, that's something I talk about a lot is that lawyers really, I sometimes call us attack librarians, but we're only a librarians to the point that something's published. So in order to be published, it kind of has to happen in a court. And I mean, one of the members of our TT priests club just said that again the other day, and I just went through my mind. Again, not everything gets to court. A lot of things are negotiated outside of court, and so often you're engaging with the lawyer not for the pure legal knowledge like section 15 or whatever else that is public information. It's the information, it's the stuff they keep in their brain that they've learned through experience.
Tara (47:20):
Yes, yes, absolutely. Look, if you've made it this far, we have a little gift for you, Carrie, this Carrie, this is a surprise.
(47:30):
What am I getting? Tell me what, I like. I love free stuff.
(47:33):
Okay, so it's a one page download of the top 10 mistakes when nominating financial controllers so disclaimer.
Carrie (47:44):
I've made all of these mistakes at some point, I'm sure.
Tara (47:45):
No, absolutely I'd say same. That's why I've put it together. All the things that I've seen go well or not well, or when we're workshopping instructions, we just limited it to the main 10 though. So in the show notes, you'll see where you can download this. And yeah, just a little handy cheat sheet to go through and see if there's things on there that you agree with or don't agree with or have in the back of your mind.
(48:11):
I can't wait for the emails, Tara. I can't wait.
(48:15):
Well, we're going to wrap it up. Thank you everyone for listening, and we will see you on our next episode.
