The recent AAT decision in the case of Bendel and Commissioner of Taxation  AATA 3074 is in stark contrast to the ATOs longstanding position that an unpaid present entitlement of a corporate beneficiary constitutes the ‘provision of financial accommodation’ by the company to the distributing trust. […]
The Role & Powers of a Trust Appointor: A Snapshot
Emily Pritchard, current as of: 2 August 2022.
The role of the Appointor in a discretionary trust, and questions as to who should hold this position initially and into the future, often give rise to conflicting advice. What is essential, above all else, is a trust deed that provides the mechanisms for changing Appointors and managing Appointor succession in the desired manner.
In light of the varying approaches taken to Appointor change and succession, it is useful to highlight the role of the Appointor and outline how the Acis deed accommodates multiple approaches to succession planning in relation to that role.
The Appointor is the position in a trust that generally has the power to remove a trustee and/or appoint new trustees. Some trust deeds also require that the consent of the Appointor is obtained when the trustee intends to carry out certain powers afforded to it under the trust deed.
The role is significant because it effectively controls the trust by controlling the identity of the trustee. As a result of that “ultimate” control, it is important that succession planning is considered when determining who will act as the Appointor of a trust.
To address this requirement, the Appointor provisions in the Acis deed are extensive and provide various mechanisms to deal with different scenarios, ensuring that the position is always filled.
Mechanisms in the Acis Deed
What happens when an Appointor resigns?
- If there are two or more Appointors and one resigns, the resigning Appointor ceases and the remaining Appointor/s continue as the Appointor/s of the trust.
- If a sole Appointor resigns they may appoint a replacement, failing which the Alternative Appointor becomes the Appointor.
- If a sole Appointor resigns and there is no Alternative Appointor, the resigning Appointor must appoint a replacement, or their resignation will not be effective until they do so.
What happens when an Appointor dies or loses capacity?
- If there is more than one Appointor and an Appointor dies or loses capacity, they cease to be an Appointor and the surviving Appointor/s remain.
- If a sole Appointor dies or loses capacity, they cease to be the Appointor and the Alternative Appointor becomes the Appointor of the Trust.
- If a sole Appointor dies or loses capacity and there is no Alternative Appointor, that person ceases to be the Appointor, and their Legal Personal Representative (LPR) has the right to appoint a replacement Appointor. In doing so, the LPR:
- must appoint any person/s nominated in the will of a deceased sole Appointor;
- must appoint any person/s previously nominated in writing by a sole Appointor that has lost capacity; and
- may appoint any person/s, including themselves, as Appointor if none has previously been nominated by the Appointor who ceased to hold that position due to death or incapacity.
What happens when the Appointor is removed, other than in the cases of death or incapacity?
An Appointor is also removed in certain circumstances, other than death or incapacity, such as events surrounding bankruptcy or liquidation.
- In these circumstances, if one of two or more Appointors is removed, that Appointor ceases to be an Appointor and the remaining Appointor/s remain as the Appointor/s of the trust.
- If a sole Appointor is removed in circumstances other than death or incapacity, the Alternative Appointor becomes the Appointor.
- If a sole Appointor is removed in these circumstances and there is no Alternative Appointor, then a new Appointor is appointed by:
- a majority resolution of the Primary Beneficiaries with legal capacity; or
- if there are no Primary Beneficiaries with legal capacity, by the oldest surviving Secondary Beneficiary with legal capacity.
Other important points to note about Appointors in the Acis deed.
- Decisions of Appointor/s must be unanimous.
- An Excluded Person cannot be an Appointor or Alternative Appointor.
- An Alternative Appointor may resign (but does not have the right to appoint a replacement, even if they are the sole Alternative Appointor).
- The Appointor can appoint additional Appointor/s.
- The Appointor can appoint and/or remove Alternative Appointors, including replacing an Alternative Appointor who has resigned.
What Can Happen Over the Life of a Trust
Case Study #1
A discretionary trust is established adopting the Acis deed. It names John Smith and Mary Smith (husband and wife) as the Appointors. It also names their son (Jarrod Smith), their son’s wife (Melanie Smith) and their daughter (Jane Smith) as the Alternative Appointors of the trust. The following happens (chronologically in the order listed):
- John passes away and is therefore removed as an Appointor, leaving Mary as the sole Appointor of the trust.
- Jarrod and Melanie divorce. For estate planning purposes, Mary (as the sole Appointor) removes Melanie as an Alternative Appointor of the trust, leaving Jarrod and Jane as the Alternative Appointors of the trust.
- Jane is declared bankrupt and is therefore removed as an Alternative Appointor of the trust, leaving Jarrod as the Alternative Appointor.
- Mary loses capacity and is therefore removed as Appointor of the trust. Jarrod becomes the Appointor of the trust and ceases to be the Alternative Appointor of the trust.
- Jarrod (as the Appointor of the trust) appoints his now adult son, Jenson, as Alternative Appointor of the trust.
The provisions of the trust deed work to ensure that John and Mary maintain the “ultimate” control of the trust whilst they are alive and able, and that they can control and change those that will replace them as their circumstances change.
Case Study #2
A discretionary trust is established adopting the Acis deed. It names Edward and Amelia Jones (husband and wife) as the Appointors. The following happens (chronologically in the order listed):
- Amelia passes away and is therefore removed as an Appointor, leaving Edward as the sole Appointor of the trust.
- Edward loses capacity and is therefore removed as an Appointor of the trust (without having nominated anyone to replace him).
- George Jones (Amelia and Edward’s son), as Edward’s duly appointed attorney (LPR), appoints himself as the Appointor of the trust.
The provisions of the trust deed work to ensure that, despite there being no Appointor and no nomination made for a replacement, the role of Appointor is not eternally vacant.
- The role of Appointor is sometimes also referred to as Principal.
- References to Acis deed mean the current, standard Acis discretionary trust deed.
What’s Important – The Power is in the Deed
Above all else, this is another case of making sure that your trust deed allows the actions that you intend.
In terms of the Acis deed, you have the security of knowing it contains multiple mechanisms that allow you to do what you need; however, don’t assume that every deed has the same mechanisms and operates as effectively.
You may want to consider having old deeds amended, particularly if they are not Acis deeds. Feel free to contact us with any queries.