This is probably best explained by using another case study. If we go back to Luke and Sarah’s case study.

Let’s assume Sarah did have a testamentary trust Will at the time of her death. Because Sarah owned her home jointly with Luke, her share of the home automatically passed to him.

Everything else though, including her super and life insurance, passed into the trust set up in her Will for the benefit of Luke and Sarah’s biological children.

At the time Sarah set up her Will, she trusted her husband Luke implicitly and decided that he should be in complete sole control of the trust. Sarah trusted that Luke would do the right thing and use the money invested in the trust to look after himself and importantly her children. Because Luke is in sole control of the trust, the assets inside the trust will look and feel like his assets. Luke will literally be able to login to online banking using an app on his phone, and manage the trust bank account exactly like his personal bank accounts. He could pull out lump sums and take the kids to Disneyland, buy new assets, pay off his mortgage or use the money in the trust to refinance. If you’ve ever been a director of a company and had a company bank account, you will know what I’m talking about. The set up is pretty similar.

Let’s say Luke eventually re-partners. And they break up, the trust ensures there is this great big separation, like a firewall between the assets in Sarah’s trust and Luke’s personally owned assets that are going to be on the table and available to the second ex in any divorce or separation proceedings.

Now, I’m not suggesting the trust is entirely bullet-proof, but it definitely will be so much harder for that second ex-spouse to claim that the assets in Sarah’s trust should be her property. Because Sarah had a testamentary trust, Luke has a 100m head start protecting the assets compared to if Sarah didn’t have a testamentary trust.

Now if Sarah had any inkling that Luke would re-partner after her death, and she was really worried he wouldn’t manage the trust properly to look after her children, Sarah could appoint another person to work alongside Luke to act as a bit of a check and balance.

There are pros and cons of having more than one person in control of a trust. One benefit is it really beefs up the asset protection of the trust because it becomes a lot harder for a creditor or predator to argue that the trust is some kind of sham arrangement and the assets inside the trust are really just Luke’s since Luke deal with the trust assets without the other controller’s knowledge and approval. On the down side, we can enter into costly dispute territory if there is a deadlock between the controllers so if you want to really lock the trust down and restrict it, you need to appoint controllers that can work together or alternatively appoint an independent controller like an accountant.

Now let’s assume Luke and Sarah prepared their Wills in their 70s and they weren’t concerned about the survivor re-partnering so they decided in their Wills that the trust would only come into operation on the survivor’s death, when they’re both not here. In this instance the trust or trusts, will be set up for the benefit of the children only.

Again, it’s a flexibility versus risk balancing exercise. If they trust their kids to manage their trusts on their own, and they’re not concerned about their kids’ relationships breaking down and their in-laws running off with their legacy, then they might keep it simple and flexible and allow each child to be both the controller and beneficiary of their trust. As I’ve explained in other videos, this will mean the assets inside the trust will look and feel like that particular child’s assets. The child will literally be able to login to online banking using an app on their phone, and manage the trust bank account exactly like their personal bank accounts. They can pull out lump sums, take their kids to Disneyland, buy new assets and pay off their mortgages, all without having to get approval from anyone else. If Luke and Sarah however were worried about their kids relationships, or their high risk occupations, then they could appoint a trusted sibling to be the controller of the trust, or a combination of their children. They would need to be mindful about entering into dispute territory and causing rifts between their children and it may be the case that they need to consider appointing a trusted friend or an independent like an accountant.

On top of their first choice controller, Luke and Sarah each need to select backups to cover the scenario of their first choice being unable or unwilling to be the controller. This could be due to death, incapacity or bankruptcy.

Having a succession plan for the role of controller is an equally important decision.

In summary, what I really want to reinforce is that choosing a controller is an intricate balancing exercise between flexibility and your appetite for risk and the person or people you nominate to control your trusts will be unique as every family is different.