In this Bulletin

1. The role of an Appointor
2. Old Trustee’s Position
3. Does changing the Appointor to a Trust constitute a resettlement of the Trusts

This is the first Bulletin in a two part series, in which we explore the role and duties of an Appointor in a family/ discretionary Trust. The Appointor(s) is the ultimate controller of the Trust as they have the power to appoint and remove Trustees at will without any consultation to any of the Beneficiaries or Trustees. Most typical family/discretionary Trusts in Australia have the position of Appointer as part of the terms of the Trust.

The Appointor as a general rule is not a signatory to the Deed establishing the trust. Nor is it a formal requirement of the Trust being validly established that an Appointor be appointed.

So why is the position of Appointor contained in the majority of family Trust deeds, and why is the position of such importance?

The role of an Appointor

Australia in the 1960s and 1970s started to see the evolution of discretionary trusts as a way of protecting assets and offering tax benefits to the persons controlling the trust. The original authors of these deeds saw the need to have a safety mechanism in place should the Trustee of the Trust be placed into liquidation or act in a manner not in line with the interests of the Beneficiaries to the Trust.

The Appointor named in the Trust Deed has in the majority of Trust deeds the power to remove a Trustee and appoint a new Trustee without consultation with any other person. Since the Trustee controls every facet of the Trust’s operations from investment decisions to decisions as to which beneficiary gets what income or capital from the Trust, the power to remove the Trustee has most people concluding that the Appointor is the ultimate controller of the Trust. The reality is that the Trustee makes decisions regarding the Trust affairs without consultation with the Appointor but the Appointor can remove the Trustee.

The power of the Appointor to remove the Trustee is a fiduciary power that must be exercised for the benefit of the beneficiaries of the Trust. This power is further discussed in part 2.

Old Trustee’s Position

If a Trustee is removed from a Trust by an Appointor this does not automatically remove the Old Trustee’s involvement with the Trust. A Trustee is primarily liable for the debts of the Trust. Most Trust deeds and state legislation allow the Trustee to be indemnified out of the assets of the Trust. If the retiring Trustee is sued for old Trust debts, he will inevitable rely on his indemnification rights to cover his position.

Does changing the Appointor to a Trust constitute a resettlement of the Trust?

If the Trust deed contains a power to vary the terms of the deed then changing the Appointor would not constitute a resettlement of the Trust. The Commissioner’s position on Trust resettlements is set out in TD 2012/21.

Conclusion

All Trust instruments should ensure there is an appropriate mechanism in place for the succession of Appointors. This should include the survivorship of the Appointor’s powers upon succession, namely the power to appoint and remove Trustees.

Gold and Platinum members read on for how the important “Richstar Case” has affected the thinking of who has effective control of the trust.

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