The power of the Appointor: Choosing convenience over risk

Corporate & Commercial 6 April 2018

In a family trust, the role of the Appointor is to ensure that the Trustee exercises their powers and duties in the best interests of the Beneficiaries. Subject to the terms of the trust deed, the Appointor has power to appoint and remove a Trustee which can be exercised at any time, without any reason or cause and does not prevent the Appointor from appointing themselves as Trustee.

When a family trust is created, it is important to consider who will hold the office of Appointor to ensure that the trust property is dealt with in the best interests of the beneficiaries. Often, the role of trustee and appointor are filled by the same person as a matter of convenience. In the beginning, the objectives of the family members are aligned, if the family relationship breaks down there is a high risk that the Appointor may suborn their fiduciary obligations and exercise their power to remove the trustee and appoint themselves to ensure that the trust property is distributed in their own best interests. To prevent this from happening, the family should consider implementing the mechanisms below to maintain the integrity of the trust during a time of conflict.

Independent Appointor

When the Appointor is independent from all other parties of the trust, this creates certainty of impartiality. This will ensure that the beneficiary’s interests are protected as the Appointor has no interest in the trust property, and they will not be motivated to remove or influence the trustee to make distributions in their own favour.

Two Appointors

Where the office of Appointor is held by two individuals, decisions made by the Appointors must be made unanimously or by special resolution. This creates a veto power within the Trust and can prevent the Appointor from removing a Trustee for their benefit. However, for this mechanism to be effective, at least one of the Appointor’s must be independent.

The Trust Deed

The terms of the trust deed may provide security to ensure that the Appointors exercise their powers within the fiduciary scope. Firstly, the deed may prevent the Appointor from appointing themselves as Trustee whether that be by a sole director company or in their personal capacity. This clause will ensure that any variation of this kind will be invalid. Secondly, the Trust may provide requirements that must be met in order for the Deed of removal to be effective. This can include requiring the Trustee to acknowledge its removal from office or notice to be provided to the parties to the Trust.

Succession of the Appointor

The trust deed may provide that the office of Appointor to be succeeded by a nominee of the deceased or the Legal Personal Representative. If a succession plan is in place within the Trust, it is important that the Appointor’s will reflects that same provisions as the deed. A review of the Appointor’s will is necessary in this case to ensure that the deed and will do not conflict and the integrity of the trust is maintained following the death of the Appointor.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5263.

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