Passing on your assets to the next generation

The self discipline that you have displayed over the last 15 years and your self education about property strategies has seen you grow a property portfolio of ten properties over that time through the establishment of three separate companies acting as trustees for three different family trusts.

You now have a property portfolio worth close to $2M.

You have always known that you are the custodian of these assets for future generations and in your case that is your 25 year old son and his three infant children.

A solicitor specialising in estate planning has advised you that you do not actually own the company/trust structures however you control these entities though as you and your wife are the sole directors and shareholders of each of the companies and the principal beneficiaries of each of the three trusts.

You have been advised that the way to pass these assets down to your family is to leave control of the directorships and ownership of the shareholding in your Will to your son on the assumption that he will eventually do the same himself with your grandchildren.

However you have niggling doubts about your son’s maturity at this stage in his life to manage these assets and for a while you even consider “skipping a generation” by leaving control of the assets to the grandchildren.

You could do this by establishing a testamentary trust under your will for their benefit so that the assets bypass your son.

You know though that doing this will hurt your boy and you discuss with your specialist solicitor other options. 

He suggests that you test the boy’s mettle and his ability to do the job by passing over control to him in stages.

It is suggested to you that you initially make him a co-director of the companies with you and your wife and if over the next few years he displays the necessary maturity, ability and stability then you and your wife can resign as co-directors leaving him as the sole director.

He would then have the day to day control of the assets.

You and your wife will continue on as shareholders in the company and Appointors in each of the Trusts (still keeping a watchful eye over him) and you could provide in your Wills that the shares are left to him when you pass on.

The final stage in the staggered passing of control of the assets over to your boy lies in the role of the Appointor in each of the Trusts.

The Appointor in each of the trusts is the most powerful person in the trust relationship as they have the ability to remove or replace the trustee. 

If during the time that your son is co-director you form the view that he is not up to the task then you and your wife can simply remove him from the board of directors and consider the option of skipping a generation by leaving the assets to your grandchildren.

If though you are comfortable after a few years and resign as co-directors leaving him as sole director, but sometime before you pass on, you then lose confidence in him the fact that you and your wife are Appointors of the trust allows you to remove him as the director in charge of the Trustee Companies by simply appointing a new Trustee of the Trusts.

If however you are happy with his performance you can finalise the transfer of control and ownership of these structures to your son by leaving him in your Wills, the shares in the companies and naming him as Appointor under each of the Trusts.

Passing these assets in stages has seen you discharge your obligation as the custodian of these assets for future generations of your family.

Well done.

About Rob Balanda Rob is a lawyer, who is now retired and living off his property portfolio. He was formerly a partner in the Gold Coast based law firm MBA Lawyers.