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Trusts can enable the transfer of business assets to the next generation with minimal disruption, however it is important to understand the key positions that people are appointed to in a typical trust structure.

 

Many farm businesses have the following structure:

 

Entity Farm Trading Trust Farm Land Trust Parents (Individuals) Son & Wife (Individuals) Level of control
Appointor (s) Husband  Wife Husband  Wife Ultimate Control
Son Son
Trustee Farm Trading Company Husband  Wife
Shareholders Husband  Wife
Son
Directors Husband  Wife
Son Little to no control
Land owned now None Most Some Maybe
Future Land Purchases None Possibly No Possibly

 

A brief description of the roles within these entities is as follows:

 

Role Responsibilities Can they be replaced? What roles do they control?
Trust:
Appointor (s) Has ultimate control of a Trust (including ownership) Not without their consent. Can change the Trustees if not happy with how the Trust is being managed.
Trustee Actively manages the Trust’s assets Yes na
Company:
Shareholders Owners of the trustee Company Only if they sell their shares. Can vote to change the Directors if not happy with how the Company is being run.
Directors Strategic (long-term) decisions.

Day-to-day management.

Yes Employees, Finance, etc

 

The Trust Deed is the document that sets out the rules the trust must abide by.

  • If the needs of the trust change then a Variation to the Trust Deed can be drawn up.
  • Includes details on what happens if one of the Appointors dies.
    • Ideally the Trust Deed says the Appointor’s role passes to surviving Appointor(s).
      This takes the transfer of the assets owned by the trust out of the hands of an individual’s estate (i.e. distributed through their Will) and is no longer open to challenges to the Will.

Using the example above, if the Son is made a:

  • Director of the Company: he can make decisions for the direction of the farm but has no actual security in the position, because he can be sacked by the Shareholders or the Trustee.
  • Shareholder of the Trading Entity: he is a co-owner in the business, but at any time the trading entity (Trustee) can be sacked by the Appointor(s), so again little actual security.
  • Appointor of the Trust: he is now a joint owner of the assets and jointly controls who runs the farm business. He can not be removed unless he chooses to resign.
    • Pros – Safeguards against challenges to the Will by off-farm siblings during parents’ estate distribution. No Capital Gains implications when the Appointor(s) change, as the owning entity remains the same i.e. the Trust.
    • Cons – the assets are considered partly ‘owned’ by the Son, hence are exposed to Family Law if the Son and Wife separate.

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