Legal Tip 355: Discretionary Trusts without Appointors

It is rare, but I have seen at least one discretionary trust set up that did not have an appointor position. No one had the power to remove the trustee or appoint a new trustee, except the current trustee. The current trustee was a company.

It was therefore very important to consider the control of the company shares for incapacity and death, and also the asset protection risks of holding these shares.

So what happens if a trustee dies and there is no one with the power to appoint a new trustee? This is where the trustee Act kicks in.

Section 6 of the Trustee Act 1925 (NSW) for example

TRUSTEE ACT 1925 - SECT 6 New trustee


This section says a lot of things, one of which is that the last surviving trustee can appoint the next trustee, if the deed is silent, or if they had already died then the legal personal representative (LPR) of the last surviving trustee (ss 4)

Example

Homer sets up the Simpson family trust which is a discretionary trust settled by deed and the deed was poorly drafted and does not include any provisions for an appointor or a successor trustee.

Homer dies.

Homers will appoints Barney as his executor with the Public Trustee as the back up executor.

The assets that Homer owned as trustee do not pass via his will, but Barney is now the trustee as he is Homer’s LPR, but Barney does not accept the position of LPR so the Public Trustee becomes the LPR and now they are trustee of the Simpson Family Trust.


Imagine what could happen on bankruptcy. Homer goes bankrupt, assets held as trustee are not available to creditors but Homer is automatically removed as trustee. Someone, a beneficiary usually, will need to apply to the Supreme Court to appoint a new trustee.


Tip: never start a discretionary trust without an appointor.

 

Is there any informed reason for not having an appointor?

 

None that I can imagine