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Succession Trusts
Succession trusts are effectively a form of discretionary trust that has predefined control and income and capital clauses that operate upon a certain event.
That event is normally death of one parent or both parents or one or both parents being found of unsound mind.
These are not to be confused with bloodline trusts that provide that the income and/or capital be distributed amongst only blood relatives. A succession trust can be a bloodline trust or a non-bloodline trust.
The purpose of a succession trust is to outline the entitlements of the children and grandchildren after the parent’s death. It is a way to avoid fighting that can normally arise when parents pass away and leave considerable assets in a discretionary trust.
Lockdown Succession Trust
A lockdown succession trust provides that the entitlement to income and capital lockdown on the first to occur being the death, or if selected, becoming of unsound mind, of one of the parents. Following this event the income and capital appointments that can be made under the Trust Deed are restricted.
Once a parent passes away or becomes of unsound mind the appointment of income is split into an amount for the remaining parent and amounts for the children. The children are categorised into classes. For example, the Child 1 Beneficiaries includes the child, their spouse (unless the bloodline option is selected), the child’s children and grandchildren, trusts, and companies associated with Child 1. The capital of the trust is locked to be distributed either equally amongst the children’s classes or in fixed percentages.
Non-Lockdown Succession Trust
A non-lockdown succession trust provides that the entitlement to income and capital lockdown on the death of both parents, and if selected, becoming of unsound mind. If one parent passes away the remaining parent may deal with the income and capital as they see fit. Following the death of both parents or both parents becoming of unsound mind the income and capital appointments that can be made under the Trust Deed are restricted.
Once both parents pass away or become of unsound mind the appointment of income is split into equal amounts amongst the children’s classes. For example, Child 1 Beneficiaries and Child 2 Beneficiaries may share the income equally or in fixed percentages. When both parents pass away or become of unsound mind the capital of the trust is locked to be distributed either equally amongst the children’s classes or in fixed percentages.
Watch the explainer video below to learn more about Succession trusts and all of the features they can offer.
The main feature of a succession trust is to provide for the appointment of income and capital to surviving children in equal shares or fixed percentages.
Bloodline feature
Both lockdown and non-lockdown succession trusts may contain a bloodline feature. This is simply a feature that does not include in-laws as beneficiaries. Therefore, a son-in-law and daughter-in-law are not included as income or capital beneficiaries.
Capital restriction feature
This feature allows you to set a date before any capital of the trust may be distributed. A parent may consider that the children should wait until they are 30, 40 or 50 before they are able to appoint the capital to themselves.
Appointor feature
This feature allows who will control the appointment and removal of the trustee.
Income and Capital distribution
A succession trust enables the parents to craft who will be entitled to the income and capital of the trust post one or both parents’ death or becoming of unsound mind.
Existing discretionary trusts may, if the amendment provisions allow, be converted to a succession trust. It is effectively a will within the trust. Leaving the income and capital of the trust to be distributed at the trustee’s discretion may result in disputes and litigation over control and entitlements.
Many high wealth families have succession trusts in place to effectively manage the succession of the family’s wealth and assets.
Appointor Succession
'Appointor' means John Smith and Jane Smith. Following the death and/or being found of unsound mind of both John Smith and Jane Smith, Tom Smith, Allen Smith and Rachel Smith will become joint Appointors. Where there are two or more Appointors, decisions must be unanimous
Children's class of beneficiaries
'The Tom Smith Beneficiaries'means:
Tom Smith,
The spouse of Tom Smith, (excluded if bloodline option selected)
The children of Tom Smith,
The grandchildren of Tom Smith,
any company in which any of the abovementioned persons is a member,
the trustee (in its capacity as such) of any trust in which any of the above persons or companies is a beneficiary whether vested or contingent
Children's class of beneficiaries
'The Allen Smith Beneficiaries'means:
Allen Smith,
The spouse of Allen Smith, (excluded if bloodline option selected)
The children of Allen Smith,
The grandchildren of Allen Smith,
any company in which any of the abovementioned persons is a member,
the trustee (in its capacity as such) of any trust in which any of the above persons or companies is a beneficiary whether vested or contingent
Children's class of beneficiaries
'The Rachel Smith Beneficiaries'means:
Rachel Smith,
The spouse of Rachel Smith, (excluded if bloodline option selected)
The children of Rachel Smith,
The grandchildren of Rachel Smith,
any company in which any of the abovementioned persons is a member,
the trustee (in its capacity as such) of any trust in which any of the above persons or companies is a beneficiary whether vested or contingent
Surviving spouses become Remainder Beneficiaries
Lockdown Trust
'The Remainder Beneficiaries'means:
John Smith and Jane Smith,
any company in which any of the abovementioned persons is a member,
the trustee (in its capacity as such) of any trust in which any of the above persons or companies is a beneficiary whether vested or contingent, and
The children and grandchildren of John Smith and Jane Smith.
Non-Lockdown Trust
Not applicable to non-lockdown trusts
Income appointments - not equal distribution
Lockdown Trust
Notwithstanding sub-clauses 2.2 and 2.3, on the first to occur being the death and/or being found of unsound mind of John Smith or Jane Smith - and unless all of Tom Smith, Allen Smith and Rachel Smith have passed away without any surviving children - no appointment under those sub-clauses may thereafter be made other than as follows:
as to 40% thereof – in favour of such one or more of the Remainder Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit,
as to 20% thereof – in favour of such one or more of the Tom Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit,
as to 20% thereof – in favour of such one or more of the Allen Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit, and
as to 20% thereof – in favour of such one or more of the Rachel Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit.
Non-Lockdown Trust
Notwithstanding sub-clauses 2.2 and 2.3, following the death and/or being found of unsound mind of both John Smith and Jane Smith - and unless all of Tom Smith, Allen Smith and Rachel Smith have passed away without any surviving children - no appointment under those sub-clauses may thereafter be made other than as follows:
as to 40% thereof – in favour of such one or more of the Tom Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit,
as to 40% thereof – in favour of such one or more of the Allen Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit, and
as to 20% thereof – in favour of such one or more of the Rachel Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit.
Capital appointments - equal distribution
Lockdown Trust
Notwithstanding sub-clauses 3.1 and 3.2 and subject to cub-clause 3.5, following the death and/or being found of unsound mind of John Smith or Jane Smith - and unless all of Tom Smith, Allen Smith and Rachel Smith have passed away without any surviving children - no appointment under those sub-clauses may thereafter be made other than in equal proportions as between such of the following categories as continue.
Category 1: such one or more of the Remainder Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit.
Category 2: such one or more of the Tom Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Tom Smith passes away without any surviving children.
Category 3: such one or more of the Allen Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Allen Smith passes away without any surviving children.
Category 4: such one or more of the Rachel Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Rachel Smith passes away without any surviving children.
Non-Lockdown Trust
Notwithstanding sub-clauses 3.1 and 3.2 and subject to cub-clause 3.4, following the death and/or being found of unsound mind of John Smith or Jane Smith - and unless all of Tom Smith, Allen Smith and Rachel Smith have passed away without any surviving children - no appointment under those sub-clauses may thereafter be made other than in equal proportions as between such of the following categories as continue.
Category 1: such one or more of the Tom Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Tom Smith passes away without any surviving children.
Category 2: such one or more of the Allen Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Allen Smith passes away without any surviving children.
Category 3: such one or more of the Rachel Smith Beneficiaries to the exclusion of the other or others of them and in such proportions or manner as the Trustee shall in its absolute discretion think fit; this category ceases to continue if Rachel Smith passes away without any surviving children.
Optional – Restricting the appointment of any capital to a set date
Lockdown Trust
No appointment of capital may be made following the death and/or being found of unsound mind of John Smith or Jane Smith until 10 January 2045.
Non-Lockdown Trust
No appointment of capital may be made following the death and/or being found of unsound mind of John Smith and Jane Smith until 10 January 2045.
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