In this Issue

1. Does an Appointor have any duties?
2. What happens if an Appointor goes bankrupt?
3. Can an Appointor dismiss a Trustee and appoint himself as Trustee?

This is the second Bulletin in a 2 part series, in which we explore the role and duties of an Appointor in a family/ discretionary Trust. In Issue 1 we focused primarily on the role of the Appointor.

Does the Appointor have any duties?

The power of the Appointor to remove a Trustee is a fiduciary power that must be exercised for the benefit of the Beneficiaries of the Trust, and must be consistent with the purpose of the Trust. The Appointor has the power to remove an existing Trustee, or nominate an additional or replacement Trustee. The minimum duty is “the duty to perform the Trust honestly and in good faith, for the benefit of the Beneficiaries” (Armitage v Nurse [1998] Ch 241 at 253-254).

The particular duties owed by an Appointor will depend on the scope of the powers conferred on the Appointor in the Trust deed. The discretion of an Appointor to appoint a Trustee must be exercised personally and not in conjunction with, or under the direction of, somebody else, including Beneficiaries who are entitled to the entire beneficial interest. As stated by Kay J in the Re Skeats’s Settlement (1889) 42 Ch D 522 at 526, it “imposes upon the person who has the power of appointment the duty of selecting honest and good persons who can be trusted with the very difficult, onerous, and often delicate duties which trustees have to perform.”

What happens if an Appointor goes bankrupt?

Certain cases have raised the question of whether a Trustee in bankruptcy can seize the assets of a Trust where the Appointor of the Trust is bankrupt. The reason this might be dangerous is if the powers of the Appointor are considered “property,” a Trustee in bankruptcy could potentially acquire the power to appoint and then use that power to appoint a Trustee that would make distributions to creditors.

Whether a Trustee in bankruptcy could do this is still unclear. The starting point of this principle was discussed by Fry LJ in Re Armstrong: Ex parte Gilchrist (1886) 17 QBD 521: “…A power is an individual personal capacity of the donee of the power to do something. That it may result in property becoming invested in him is immaterial; the general nature of the power does not make it property.”

Since the late 1800s there have been mixed opinions from the Courts as to whether this could be the case, with most decisions confirming that the power to remove and appoint was not “property.” The power of removal and appointment is a fiduciary power and is required to be exercised in the interests of the Beneficiaries and solely in furtherance of the purpose for which the Trust was conferred. Its purpose is not to be exercised in the interests of the Appointor.

It was held in the case of Re Burton, Wily v Burton [1994] FCA 1146 that the power to remove and appoint was not “property” within the meaning of s 116 of the Bankruptcy Act 1966. The power is not being exercised in the interests of the Appointor and therefore the power which the Appointor holds is not “property.” The case of Lewis v Condon [2013] NSWCA 204 supported the decision in Re Burton. The power of the Appointor did not vest in the Trustee of bankruptcy: “the power to remove and replace a trustee is precisely that: a power, not property.” The Court relied upon s 116(2)(a) of the Bankruptcy Act 1966 which excludes from the vesting, property held by the bankrupt in Trust for another person. As the law currently stands, a Trustee in bankruptcy can therefore not seize the assets of the Trust.

Can the Appointor dismiss a Trustee and appoint themself as Trustee?

Certain cases have stated that it would be an improper exercise of the power of the Appointor to appoint himself or herself as Trustee. The power to remove or appoint a Trustee must be exercised in the interests of the Beneficiaries and must be consistent with the purpose of the Trust. The general view is that an Appointor cannot exercise their power for their own interests and it is therefore improper for an Appointor to exercise their power of appointment for their own benefit: “it would be extremely improper for a person who has a power to appoint or select new Trustees to appoint or select himself, for that principal reason.”- Re Skeats’ Settlement.

If two or more individuals are Trustees, one or both can be the Appointors. Some cases have stated that because of this fact, Appointors many appoint themselves as Trustees. That being said it is a very ‘salutary’ rule, than an Appointer ought not to appoint themselves as Trustees, as expressed in the English case Montefiore v Guedalla [1903] 2 Ch 723, at 725: “I am clearly of opinion that it has not been laid down that the Appointors are outside the class who can be appointed, although it has been said, and it is a very ‘salutary’ rule, than an Appointer ought not, save in exceptional circumstances, to appoint himself.”

Gold and Platinum members read on for a more detailed look at Montevento Holdings Pty Ltd v Scaffidi

Build these documents now:

• Change Appointor and/or Guardian of Family Trust
• Family Trust - Update to Allow Change of Appointor and Guardian
• Change Trustee of Family Trust
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