Discretionary trusts can be an excellent vehicle for the management and distribution of assets and income and also for the transfer and preservation of wealth for the benefit of successive generations. However, as family structures become ever more complex and people are living far longer than previous generations, conflict as to the management of discretionary trusts is becoming more common.
From time to time the need to replace an Appointor of a discretionary trust – the individual or individuals tasked with the power to remove an existing trustee and appointing a new trustee – may arise either because of conflict or as a result of the death or incapacity of an officeholder.
A number of methods of replacement of an Appointor are possible.
Trust specifies replacement – The trust deed itself contains a specific mechanism for the appointment of a successor Appointor.
Legislation – If the trust deed does not specify a methodology for replacing an officeholder then you may need to consider the relevant legislation applicable to the trust. This will vary depending on the applicable jurisdiction.
Replacement upon death – If 2 people have been appointed as Appointors, and 1 of them dies, the survivor is ordinarily authorised to act alone, or the executor of the deceased may have the right to appoint a replacement Appointor.
Amendment of a trust deed – If a trust deed does not include a provision for the replacement of an Appointor, then it may be necessary to consider how the deed is able to be amended. Whether this is possible will firstly depend on whether there is an appropriate amendment power provided for in the trust deed and secondly on whether the power to amend the deed is restricted in any way.
Court ordered replacement or intervention – In certain circumstances and particularly in cases where a dispute between parties affected by the trust arises, a Court may intervene to ensure that there is a proper administration of the trust.
An increasing number of individuals, especially those with complex professional and personal affairs, are using discretionary trusts as part of both their day to day wealth management and also as part of their approach to long term planning. Should the need arise to replace an Appointor it is recommended that advice be obtained prior to any changes to ensure that the replacement is arranged in accordance with either the relevant trust provisions or applicable legislation.