Why is it important to have a Successor Appointor?

The Appointor of a discretionary trust is a role created under the terms of the trust that usually provides for that person to have the ultimate control of the trust. For example, the Appointor under the DBA Lawyers’ trust deed:

• must consent to any variations to the trust deed;
• has power to appoint and remove trustees; and
• can prohibit or impose conditions on the trustee’s exercise of power.

While the trustee is responsible for the day to day management of the trust, the Appointor has the critical role of supervising and having ultimate control in respect of the trustee.

Thus, it is essential that the succession to the role of the appointor is planned for especially upon their loss of capacity or death. Under the DBA Lawyers’ trust deed, the Appointor does this by nominating a Successor Appointor.

Without prior planning, the control of the trust may be uncertain and disputes can easily arise.

When does an Appointor cease?

Under the DBA Lawyers’ discretionary trust deed the Appointor ceases from that role when they:

• die or lose legal capacity;
• become insolvent or bankrupt (or similar);
• resign;
• becomes an ‘Excluded Person’ as defined in the trust deed, which include becoming a ‘foreign person’ when the deed provides for this; or
• are removed by court orders or similar action.

The situations that most want to plan for the loss of capacity or death of an Appointor.

How does the Successor Appointor nomination work?

The DBA Lawyers’ trust deed allows the Appointor to nominate one or more persons that, upon them ceasing to be the Appointor, will automatically step into the role of Appointor of the trust. That is, they succeed to the role of Appointor immediately on the earlier of the loss of capacity or death of the current appointor.

In this way, the Appointor can pass control of the trust to the people they choose rather than this important decision being left unattended.

What happens if no Successor Appointor nomination is made?

Under the DBA Lawyers’ deed, if no Successor Appointor nomination is made where an Appointor loses capacity or dies, an Appointor’s Legal Personal Representative (being their executor/administrator or attorney under an enduring power of attorney) can step into the Appointor role (assuming that they are not otherwise an Excluded Person).

This is not ideal as there can often be issues surrounding a person’s will or power of attorney documents that may make this position unclear, assuming those documents do exist and are kept up to date.

If there is no person who can act in the role of Appointor, under the DBA Lawyers’ trust deed, the Trustee can act as the Appointor of the trust.

Without proper planning, the Appointor role may pass to someone who is not appropriate and this might result in arguments and disagreement.

Conclusions

The role of the Appointor is pivotal to the ongoing control and management of the trust. It is crucial that the person/s acting in this role have considered how and who this role will be passed on to. Planning ahead minimises risk and without planned succession to the Appointor role, control may end up in the wrong hands.

We recommend that the Appointor/s consider nominating a Successor Appointor who will step into the role when they cease as the Appointor. This should ensure succession to the control of the trust is kept in the right hands and passes in a smooth and orderly manner.

We attach an order form that can be used to instruct us to prepare Successor Appointor nomination documents.

Further reading:

• Discretionary trusts – variations and issues
• Variation powers — lessons from Re Owies Family Trust [2020] VSC 716
• Discretionary trusts & the foreign purchaser duty surcharge across Australia
• Is your discretionary trust still discretionary? Case law developments on trustee duties
• ATO checklist for trust distributions

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

By Shaun Backhaus ([email protected]), Senior Associate, and Daniel Butler ([email protected]), Director, DBA Lawyers

DBA LAWYERS

30 October 2023