Monday, November 26, 2012

Single v multiple testamentary trusts: The debate continues

Last week’s post set out a number of reasons as to why a single testamentary discretionary trust (TDT) might be the preferred structure, even if there are multiple family members to benefit under an estate plan.

As noted there are a number of factors that need to be taken into account in any particular estate planning exercise and there are a wide range of the factors that might be relevant in deciding to implement multiple TDTs.

Many of these factors have a practical focus and can include:

1              the different geographical locations of the children - particularly if one or more children live overseas;

2              poor relationships between siblings (or their respective spouses) meaning that jointly controlling wealth is likely to further fragment family dynamics;

3              the risk profiles of each child’s investment outlook;

4              the underlying nature of the wealth – for example, if particular assets are earmarked for the sole control of a particular beneficiary;

5              differences in the ‘life cycle’ of each beneficiary – for example if one child themselves has young (or no) children whereas another child has adult children, their investment objectives can look quite different;

6              the desire to have different control mechanisms in relation to different children – for example one child might be the sole controller of their TDT whereas another child may have one or more co-trustees, or indeed, not be a trustee at all; and

7              there can be a myriad of difficulties that arise if a single TDT is utilised and it is still running in, say, two generations time both in terms of overall management of the structure and how income and capital is ultimately allocated.

In the next post we will look at one further variation on this debate, the so called ‘hybrid’ approach.

Until next week.