We have many clients that ask for recommendations about the control clauses in their family trust and how they can shape that as part of their overall succession plan.
The exact terms of the Deed must be read carefully to determine what will happen if the trustee needs to be replaced, or if the controlling individual loses capacity, dies or becomes bankrupt (and therefore poses a risk to the trust assets).
There are a few basic points that should be kept in mind when a review is made of the trust terms for an estate or succession plan.
What is an “appointor”?
Most discretionary trust deeds will include clauses that provide a mechanism to give a person the power to change the trustee by “appointing” them. In most trust deeds they are referred to as the ”appointor” or guardian”. This is usually the person for whom the trust was established and the Primary Beneficiary of the trust. If the “controller” of the trust considers that a change of trustee is required, notice can be given and a deed appointing a new trustee signed. This might be because there is a change in the relationship status of the appointor, a dispute with a creditor has arisen, or changes to the family succession plan have been requested.
It is important to note that cases have recognised the appointor can, depending on the terms of the deed, have fiduciary duties to act in the best interests of the beneficiaries of the trust. The role should be taken very seriously as there may be consequences for breaching the fiduciary duty. Do I need an appointor for my trust?
There is no necessity for having the role of appointor in a family trust. In practical terms, the trustee (and, in the case of a corporate trustee, the directors of that company) has the day-to-day operating control for the trust, which includes managing money, bank accounts, buying and selling shares or property and using the income of the trust for the benefit of the chosen beneficiaries. The appointor is the person who has the power to change the trustee. This means, if a trustee is not acting in a manner that is in accordance with the purpose of the trust, which appointor expects that they will do, then the appointor has the power to remove that person or company and appoint a replacement. This might be for example where the trustees fail to consider the needs of the appointor as a beneficiary and prefer some over others in distributing income or capital from the trust. It is much better to have a clear controller or appointor in the trust, so the clear succession of that power is made if they die or become incapable of acting.
Can I have a company act as appointor of my trust?
The role of an appointor is a role created under the written signed terms of a trust deed. If the trust deed includes terms that allow a company to act as appointor, a company can act as appointor of a family trust. This can be very important if there are more family members than just one Principal interested or involved in the powers of appointing a trustee to the trust.
Should I have a company act as the appointor of my trust?
There are certain circumstances where using a company to act as trustee of the family trust is vitally important to the overall succession plan for the family group. Very often family trusts are used for a collective family business or group of property assets and everyone has a vested interest in the success. In that case the individual family members might want to be secure in knowing they have a share in a company that can exercise the powers of appointment of the trustee, so they are not excluded from decision making. They may want to reach formal agreement about how the company as appointor can make decisions regarding the trustee and the individuals that can control the trust. They may do this by excluding spouses of family members perhaps to protect the assets from claims under Family Law or other creditors.
An appointor company does not hold any assets, so there is no risk to the shares but there may be significant administrative benefits, by carefully managing control of the appointor role. Where a company is resolved to be acting as the appointor of the trust, then there is a cost for the company to be established, registered annually with ASIC and records maintained on an ongoing basis.
A corporate appointor will be very useful where there are complex family arrangements and loans or securities supporting the business or assets of the trust. It is very appropriate where there are ongoing control arrangements, where it is being transferred to multiple family members or different generations.
If you or one of your clients have questions regarding the ongoing control of a discretionary trusts, please feel free to call on 3317 4312 or email Tony.Crilly@perspectivelaw.com.