People Power: Appointors

Hello again!

As we determined in The Might of the Trustee, it is possible for trustees to retire or be removed, and for new trustees to be appointed. The trust deed will usually establish a process for how this can occur. A common (but optional) method of selecting subsequent trustees is by empowering an 'appointor' to appoint new trustees.

What is an appointor and who should be an appointor?

An appointor is a person that has the power to appoint (and usually also the power to remove) the trustee. The process usually involves the appointor executing a deed of removal or appointment of trustee (however the trust deed may state a different process). The appointor provides a decisive and reasonably speedy way of appointing a new trustee.

Given the vast powers of the trustee with respect to managing the assets of the trust, investing trust assets and making trust distributions (especially in the family trust context), selecting an appropriate appointor is of paramount importance. When creating the trust, the settlor can nominate any person (over 18 years old, solvent and of sound mind) as appointor - including an original trustee, a beneficiary or an independent third party. It is also possible (though unusual) to select a company to be the appointor.

Where the trust deed does not provide for an appointor, one may rely on relevant State trustees legislation for a process for replacing trustees.

Succession of the role of appointor

It is possible that an appointor will want to retire from that role. There are also some situations in which it is preferable that the appointor vacate the role they will put the property at risk, including:

• where the appointor is sued and his/her property is at risk under the litigation (e.g. bankruptcy litigation); and

• where the appointor is experiencing a marital breakdown.

Allawdocs trust deeds provide for retirement and succession of the appointor at death, loss of legal capacity or insolvency

The appointor owes several duties

Similar to a trustee (though not completely settled at law), an appointor's relationship with a trust and its beneficiaries is generally considered 'fiduciary' in nature. Therefore, the appointor must:

• act strictly in accordance with the terms of the trust deed; and

• exercise its powers in good faith for the benefit of the beneficiaries as a whole.

If the appointor does not act in accordance with the terms of the trust or for the benefit of the beneficiaries, then a court may intervene.

Who can the appointor appoint as trustee?

The appointor's role is primarily to appoint a trustee(s) when required, in accordance with the trust deed. Unless the trust deed states otherwise, the appointor may appoint any person or company with capacity to be a trustee to be the trustee. In theory this means that, unless prohibited by the trust deed, the appointor may appoint himself or herself to be trustee.

The influential appointor

The role of the appointor is important in maintaining control of the trust. This is a critical role in passing on future control of the trust to family members of independent advisors when drawing up your estate plans.

Our final episode of People Power will focus on another important overseer of trusts: guardians.

About us

Allawdocs provides fast, quality online legal documents for accountants, financial planners, lawyers, and business owners around Australia, including company formations, trust deeds, and SMSF documents. With the legal support of GV Lawyers, clients can receive free legal advice relating to their Allawdocs document.

Find us at www.allawdocs.com.au, LinkedIn or Twitter.

Blog provided by GV Lawyers.