Legal Tip 354: Appointor Positions in Discretionary Trusts

Discretionary trusts are usually set up with someone occupying a position known as the ‘appointor’. The appointor generally has the power to change the trustee by removing an existing trustee and/or adding a new trustee plus they may also have other powers.

The appointor could be one person, but it could be more than one person. It could even be a company.

Where there is more than one appointor there can be iss0ues with decisions being made if there is a Mexican standoff (apologies to all the Mexicans out there). You should consider whether the decisions of the Appointors need to be unanimous or majority rule.

The Appointor is really the most powerful position in the trust, so someone setting up a trust would generally want to be the Appointor – but this can have consequences for Family Law, Social Security and Succession law.

If an appointor were to become bankrupt they are often automatically removed. Once capacity is lost the appointor can no longer act and once they are dead, they are dead!

Therefore, Successor Appointors need to be considered and considered carefully since the Appointor can sack the trustee and take control of the trust – one family member could potentially take control and benefit themselves to the exclusion of others.

Sometimes Appointors might also have other powers such as to approve certain decisions of the trustee such as distributing capital of the trust.


When setting up the trust consider:

a) the powers of the appointor,

b) what happens if the appointor dies

c) what happens if the appointor loses capacity or becomes legally disabled

d) what happens if there is more than one appointor

e) what could happen if there is a disagreement and the appointors cannot agree to change the trustee

f) can one appointor appoint a successor appointor and how

g) who needs to approve new appointors – if anyone

h) is there a default back up appointor if a successor is not nominated

Ask the lawyer setting up the trust to go through all these and explain and adapt the trust to suit your needs.

 

Hi Terry, what is the difference between a default back up appointor and a sccessor appointor?
Thank you.

 

It will depend on the meanings ascribed to those terms.

Default implies there is already a back up named in the deed as there is no default by law.
A successor might be a default back up appointor too. Successor refers to someone succeeding someone else.

but it doesn't matter what you call things, all that matters is what the deed says.