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Estate Planning

Selection of appointor crucial

Great care must be taken with who is chosen as the appointor of a new family trust as they are often considered to be the real power behind and ultimate controller of the trust, according to a superannuation and estate planning legal expert.

Townsends Business & Corporate Lawyers superannuation and estate planning special counsel Brian Hor said typically the appointor was the person who had the power to “hire and fire” the trustee of the trust.

“Even though the trustee was the person, or entity, which holds the legal title to all the assets of the trust and was the person who typically had full management and control over the affairs of the trust, ultimately if the appointor believed that the trustee was not doing their job properly, or for that matter, any other reason, the appointor has the power to remove that person and replace them with one or more new trustees,” Hor said.

In addition, more often than not, the appointor would have additional powers, such as the ability to veto certain actions by the trustee, who may be required to provide prior notice of certain intended actions to the appointor, he said.

“This may extend to important issues such as amending the trust deed, changing the vesting date or end date of the trust and changing the beneficiaries of the trust,” he noted.

“Given that the appointor often has the power to block certain actions by the trustee and has the power to remove and replace the trustee, the role is often seen as a protective one to prevent excesses and abuses of power by the trustee.”

However, he warned that if the appointor was often considered to be the “real power” behind the trust, and potentially pulling the strings of the puppet that was the trustee, the role seemed less benevolent.

“Rather than being a guardian angel to watch over the affairs of the trust, the appointor is now more often considered to the be ultimate controller of the trust and even the ‘prime mover’ of the family behind the establishment and ongoing management of the trust,” he noted.

“As a result, in many modern and, it must be said, ‘cheap and nasty’ family trust deeds available from certain document providers, the beneficiaries of the trust are even defined around and by reference to the appointor, so that the beneficiaries are literally defined to be the appointor, the appointor’s spouse, the appointor’s children and so forth.

“The so-called benefit of this approach is that the document provider typically only needs three names with which to completely populate a template for a family trust deed – the name of the settlor, the name of the trustee and the name of the appointor.

“Unfortunately for the client, the potential downsides of this approach can be severe, especially where the adviser who orders such a family trust deed is not aware that the trust deed is drafted in this manner.”

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