Monday, November 19, 2012

Single v multiple testamentary trusts: The debate

One issue that comes up regularly in estate planning exercises where there is more than one family unit ultimately to benefit, is whether a single or multiple testamentary discretionary trusts (TDTs) should be implemented.

For example, if there are three adult children, each to share an estate, should those three children jointly control a single TDT or should each child (perhaps with a co-trustee) control a separate TDT, with each TDT receiving one-third of the estate.

As with many aspects of estate planning, there is no ‘correct’ approach.  This said, some of the factors that would tend to support using a single TDT include:

1              if some (or all) of the children are under the age of 18 – an estate planning exercise should always be undertaken on the assumption that the willmaker dies shortly after signing the document.  Therefore the primary focus should be on the needs of the surviving spouse.  In these circumstances, it is generally not appropriate for the wealth to be held across multiple TDTs where the surviving spouse will likely be in control for many years;

2              if asset protection (for example guarding against a relationship breakdown of any of the children) is critical, then generally a single TDT will be the more robust approach;

3              if the vision of the will maker is to have the next generation (i.e. their children) effectively act as ‘custodian’ for future generations, then this is normally more easily achieved via a single trust; and

4              if the underlying nature of the assets would make a ‘split’ ownership structure unduly complicated – for example if there is, say, one significant asset (such a property or business).

The next post will focus on some of the reasons that a multiple TDT strategy might be more appropriate.

Until next week.