We often get front row seats when people get their wills or trusts wrong, with resulting court cases invariably playing out in the media. Passing assets from one generation to another should be a good, even joyous event, but so often it turns bad and ends up a fight that knows no bounds. 

The last thing I’d want would be for my will and surrounding financial affairs to be on the front page of the local paper. Succession is high stakes.

Too much trust?

People often forget that although a will dictates what happens to any personal assets, it does not control assets owned by any family trust. It is likely that the family trust will survive your demise and although your will can appoint trustees, it has no say on what happens to trust assets. That is completely in the hands of trustees.

Remember that family trusts are discretionary – the trustees, whoever they are from time to time, can distribute assets to beneficiaries in any way that they choose. Your letter of wishes may give guidance on what you would like to happen, but those wishes are not binding on trustees.

A will is much more prescriptive insofar as it prescribes what must happen with little or no discretion given to trustees/executors. As people get older and their children enter adulthood, this prescriptive approach is often a lot better – the children are more settled, and you are probably much clearer about what they need and want.

The discretionary approach afforded by a family trust may be better while children are young (no one knows what their needs might be as they grow) but later it is likely that a definite, prescriptive approach makes more sense.

Choose trustees wisely

This is probably another reason why many trusts are being discontinued at the moment. Some older people are winding up trusts and putting their assets into their own names so that they can be dealt with by their wills. Those who do keep their assets in trust should be very careful to select good trustees to act after you have died because it is they who will decide on distributions.

Calculate what you could draw in retirement.

Don’t do a King Lear

Most care needs to be taken when adult children are being appointed as trustees of a family trust. It is not a good idea to appoint just one child as trustee – this child would have discretion as to which beneficiaries (probably his or her siblings) benefit and by how much. That is a recipe for an acrimonious outcome – if you are going to appoint children as trustees, it should be all of them.

This was one of King Lear’s major mistakes; he appointed two of his three daughters to run the kingdom while the third was cast out. The daughters who were entrusted with the kingdom proved entirely untrustworthy, while the one undeservedly cast out suffered badly.

Most people simply want to pass their personal assets on to their children in equal shares. Generally, this involves a liquidation of everything (house, KiwiSaver, other investments) with perhaps some smaller items (particular art works, family photos, antiques etc) going to named family members.

How to skip a generation

In some families it may be suitable to skip a generation and pass on relatively small amounts to grandchildren. I think this a very valuable thing to do – grandchildren get money early in life at the time it is most useful and valuable.

This comes with a couple of caveats: