Appointor & guardianship provisions in family trust deeds

Appointor provisions

The Appointor is the person or persons with the power to remove and appoint the Trustee.

Usually this can be done at any time by signing a document of removal and/or appointment.

It is common for the Appointor of a discretionary family trust to be one or both parents. Upon the death of a parent,  the survivor is usually empowered to nominate a successor in his or her Will. If no person is nominated, the trust deed often provides that the office of Appointor passes to the executors of a deceased Appointor.

Because all discretions of a discretionary family trust are exercised by the Trustee, holding the office of Appointor is extremely important. Careful consideration of who takes this important office on death of the parents is a necessary part of any estate planning exercise where a family discretionary trust exists.

Guardian provisions

A Guardian is a person who is entitled to receive advance notice of a proposed Trustee decision or appointment or whose consent is required before a decision or appointment can be made.

Often the Guardian is also the Appointor. In those cases where advance notice must be given, the underlying assumption of the trust deed is that if the Guardian does not approve of the proposed decision or appointment, the Guardian can exercise the Appointor power and replace the trustee before the offending foreshadowed decision or appointment can be made.

In a family trust situation, a Guardian power may be particularly relevant where control of the trustee is vested in third parties, such as solicitors or accountants. They were considered particularly useful in the days when gift and death duty legislation gave rise to concerns in having family members exercising control over the trustee companies of family trusts. In recent years those concerns have re-emerged concerning the possible application of Corporations Law provisions to include family trust assets in orders made against the assets of directors of trading companies.

The range of matters over which the Guardian’s consent may be required is often broad and extends to such things as:

  • capital distributions and advancements;
  • vesting and resettling of trust assets;
  • amendments to the trust deed;
  • addition or exclusion of beneficiaries

Transferring Appointor and Guardian provisions between generations

Both powers are most commonly of use where they are held by a single person or two persons who interests are aligned. This is commonly the case with the parents who establish a family discretionary trust. As long as their interests align, they jointly control the trust, irrespective of who they appoint to act as trustee. Because the power must be exercised jointly, if they cease to agree, each effectively holds a “veto” right over the exercise of either power. Therefore the status quo position will remain unless they agree to the contrary.

Within the context of succession planning however, passing those rights to the next generation often requires careful consideration. Where succession is to a single child or two children, the position may not be greatly changed from the position of having the parents as joint Appointor and/or Guardian. Where there are two children however consideration must be given to the effect of minority, death or bankruptcy of one of those children.

Page: 1 2Full Article