A Matter of Trusts

Taxation in Australia Journal

Careful consideration of the identity of the appointor of a trust, and the scope of their powers, is essential in succession planning.

Most modern discretionary trusts, whether established via a will or as an inter vivos “family” trust, will have an appointor. The appointor’s powers are subject to the wording of the will or trust deed under which they are appointed.

The power that is common to almost every appointor of a discretionary trust is the power to appoint additional trustees, or to remove a trustee and appoint a new trustee or trustees in their place. It is for this reason that the appointor is often referred to as the ultimate controlling position of the trust. However, this power is sometimes considered to be fiduciary in nature,1 meaning that the holder of the power is required to exercise it honestly and in good faith, with the best interests of the beneficiaries in mind and for a proper purpose; while it may be an ultimate power, it is not unfettered.

Some trusts will also appoint a guardian (sometimes also known as a principal), and for trusts with guardians and appointors, the roles are often distinct, notwithstanding that the same persons may be appointed. The guardian is usually required to consent to the trustee exercising certain powers (often characterised as “reserved” and/or “restricted” powers), which may include the power to amend the trust deed, exclude beneficiaries or make a distribution of trust capital.

Other trusts will only have an appointor, and in such instances, the positions of appointor and guardian may be conflated. The question of whether or not these reserved or restricted powers are fiduciary or personal in nature is not settled and becomes particularly thorny when the trustee and guardian or appointor are the same person or company. The wording of the trust deed may provide guidance in this regard.

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