27/02/2017

The appointor of a family trust is a position that retains substantial power and may ultimately control the trust.

Typically, the appointor is the person who has the power to ‘hire and fire’ the trustee of the family trust.  The trustee is the person, or entity, that holds legal title to all of the trust property and generally has complete control over the trust’s activities and management.

In addition to exercising the ability to replace trustees, an appointor may have further powers over a family trust. These could include the ability to reject particular decisions made by the trustee, or to compel the trustee to provide notice before particular actions are carried out.

The broad powers commonly afforded to the role of appointor are justified as a protective mechanism to prevent trustee abuse.  It is on the basis of these prudential oversight powers that in some instances it could be appropriate for the appointor to be an independent party from the family for whose benefit the trust was established.

Be careful - some generic trust deeds describe who the beneficiaries are by reference to the appointor, e.g. so as to include the appointor’s spouse, the appointor’s children, etc. This is as opposed to defining the beneficiaries by reference to some other person who is typically the ‘prime mover’ behind the trust, often called something like “the key person”.

By pre-populating a family trust deed by reference to the role of appointor, a document provider requires little information to complete the drafting of the document and can offer reduced costs.  The potential problems associated with this approach to drafting family trust deeds however, can be severe.

For instance, where an appointor is replaced by another person due to death or incapacity, and the family trust deed simply defines the beneficiaries around the appointor, the entire class of beneficiaries may be inadvertently changed. This may not be realised until years later in a tax audit, where severe tax consequences as a result of the change may come to light, such as trust distributions purporting to have been made to persons who are no longer beneficiaries, etc.

As a result, any cost savings made at the time of setting up the trust may be well and truly exceeded by the costs of rectifying errors discovered years down the track.

If we didn’t provide your Family Trust Deed and you would like us to check it to ensure it is fully effective and not likely to cause later problems, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.