Legal Tip 226: Asset Protection Risks of Trusts with No Appointors

Legal Tip 226: Asset Protection Risks of Trusts with No Appointors


Discretionary trusts usually have a position in the trust called that of ‘appointor’ or sometimes ‘protector’ or ‘guardian’. The holder of this position will generally have the power to fire or hire a trustee. The Appointor is the ultimate controller of the trust.

It is very handy to have in the evidence of bankruptcy.


The other day I came across a client who had a discretionary trust set up by their accountant – alarm bells already. The deed was not only digitally signed but it was also set up without an appointor. There were no terms in the trust deed relating to the appointor, so it is not just that they forgot to put the name in, but that the deed was worded in such a way that there was no appointor contemplated.


In this situation the self-employed director was the director of the trustee company. He was also the sole shareholder of the company. This is generally not an issue as if there is a likelihood of bankruptcy the trustee can usually be changed, but in this case there was no one to change the trustee. So, if this self employed person became bankrupt, his shares would fall into the hands of creditors. This would mean the creditors now control the trustee company and would sack the directors and put in a friendly director and then control the trust.

The first thing they would do after controlling the trust would be to distribute all of the income to the bankrupt, so that income could be seized by creditors to pay for any debts owed to them. If this was not enough, they also had the power, under this deed, to make a distribution of capital from the trust to the bankrupt.


So, this trust offered no asset protection upon bankruptcy of the individual, whatsoever.


The deed will need to be amended so that an appointor position is put in, shares in the company might need to be transferred too – but the clawback provisions will weaken this.


All of this is also going to cost more than the original cost of the setting up the trust too.


So carefully read the trust deed before signing it and insist on changes being made before accepting the trust deed and finalising it. This should be done by the person setting up the deed, but also by a lawyer.