The Role of Appointors in Family Discretionary Trusts
The role of the appointor in a family discretionary trust is not a mandatory appointment. Nevertheless, there are significant risks of not nominating an appointor or not knowing the identity of the appointor in a family discretionary trust. This article examines the role of the appointor in family discretionary trusts and outlines the risks involved in not nominating an appointor.
Family discretionary trusts
Family discretionary trusts are an estate planning tool that can be used for the benefit of your family including your children and grandchildren. The persons who benefit are called beneficiaries. Such a trust is created by you executing a Trust Deed and appointing a trustee (often a company) as being responsible for the management of the trust assets. The trustee holds these assets on behalf of a class of beneficiaries such as yourself, your spouse, your children and your grandchildren. This may have significant tax and other advantages for the family.
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What is the role of an appointor?
The position of an appointor is not an essential element in the creation of a family trust, but it is an important one. Sometimes this role is also called the ‘principle’ or ‘parent’. An appointor in a family trust has the power to choose the trustee(s) of the trust and appoint or remove this trustee(s). The appointor can also be given other powers under the trust document. This can include powers such as adding beneficiaries to the family trust or distributing income to specified beneficiaries.
Nominating successor appointors
An appointor may nominate a successor appointor by deed in writing. The nominated successor appointor may be appointed revocably, or irrevocably, which means they will remain in this position until their resignation or death.
What is the difference between an appointor and a trustee?
A trustee is a person or company that holds and administers property for the benefit of a third party. A trustee has a duty to act in the best interests of the trust beneficiaries. In a family discretionary trust, the trustee has a broad discretion on how to pay out that incoming capital.
It is the appointor who chooses this trustee/s. This means their role is very important as they choose who manages the trust and has discretion to pay out incoming capital.
The risks of not having an appointor under your family discretionary trust or will or not knowing the identity of the appointor
It is vital to nominate an appointor under your family discretionary trust or will and be aware of the identity of this person. For example, let’s consider a scenario where a family company is the trustee of a family trust and there is also an appointor under this trust. If the family company is passed down to their next of kin but the original owners are not aware there is an appointor, some significant problems can arise. The next of kin will replace the family company as trustee, but the appointor will remain as the person initially appointed under the deed by the original family company, despite the family company being passed down to the next of kin. This means the original appointor still has the power to replace the next of kin as trustee of the company. Furthermore, if this appointor dies, the role of appointor may fall to the executor of the deceased person’s estate.
It is important you are aware of whether there is an appointor under your family trust, and if so, who this person is. If you are unsure, a solicitor can help in reviewing your deed to identify the appointor of your family trust and ensure they are the person you would like in that role.
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DISCLAIMER: The information contained in this article is general and is not intended to be advice on any matter. It is for information only and is not legal advice. In the event of a legal problem, you should seek legal advice.