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Do you trust that your family trust was set up properly? The benefits of a corporate trustee to minimise risk

Author: Craig Hong
3 min read
01 October 2019

Key Takeaways

  • Despite popular opinion, not all family trusts require an appointer
  • Some family trusts are better served by not having an appointer
  • Removing an appointer may ensure your estate is distributed according to your wishes

The role of the appointer has commonly been used as an asset protection mechanism to effectively change control of the trust in a broad range of circumstances including a marriage breakdown, insolvency or bankruptcy of a trustee.

However, the role of appointer can become problematic if the succession of that role has not been considered from an estate planning perspective and may cause problems with the future administration of the trust and your will and estate.

Family trusts will commonly have two roles that impact upon how they are controlled: 

  • The TRUSTEE who has day-to-day control of the operation of the trust and makes decisions for the benefit of the beneficiaries of the trust. There is always a trustee; and
  • The APPOINTER or principal who has the ability to change the trustee and whose consent may be required for particular transactions undertaken by the trust. An appointer is not required, but is a relatively common feature of most family trusts.

When you transition a trust from parents, there may only be one or two appointers to a larger number of children. This may lead to problems with appointer clauses in your trust deed if the matter has not properly been considered.

Many pro forma and “off the shelf” trust deeds contain these appointer clauses. These do not take into account an individual’s personal circumstances and certainly do not account for wider estate planning.

If the appointer is not part of a holistic approach to your estate planning, they can cause more problems than they solve.

These can include:

  • No ability to appoint successors to the role of appointer;
  • Provision for a limited number of appointers which may be less than the number of children you want to put in that role;
  • The role of appointer passing to your executor when you intended it to pass to your children;
  • The appointer having powers that you did not envisage passing on;
  • Appointers being able to act severally (to make decisions on their own) when you want the role to be jointly shared or vice versa;
  • Loss of effectiveness of the role as the numbers in the role increase (i.e. the control may work when there are one or two appointers, but it may become difficult when there are four or five).

Where you have a family trust, it cannot be stated strongly enough how important it is to have the trust deed reviewed whenever you are reviewing your estate planning to ensure you are able to effectively pass control of the family trust on to your desired beneficiaries in accordance with your wishes.

This will usually require ensuring the roles and powers afforded to the trustee and appointer are very clearly defined with no room for misinterpretation of their role or remit.

There are a number of ways of doing this. Lawyers can:

  • Include clauses in your will;
  • Make amendments/variations to your family trust deed;
  • Change the trustee from individual trustees to a corporate trustee;
  • Change the powers of appointers under your trust deed; or
  • Remove the role of appointer altogether upon death of an original appointer.

The details of what kind of family trust will work best are different for each person and their circumstances. However, the outcome of not addressing this can mean your trust is administered in a manner contrary to your intentions.

If you have a family trust, it is vital that you have it considered in detail as part of your estate planning to ensure your wishes can be carried out.

As always, we suggest accessing legal advice for qualified expertise on protecting yourself, your assets and those you want to inherit your estate.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

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