What is the importance of an Appointor of a Trust?

You may have a Trust Deed or come across a Trust Deed and have read those fancy terms such as Appointor and Trustee. But do you know what these terms actually mean, particularly the importance of the Appointor of a Trust? Let’s find out.

What is an Appointor and the Trustee of a Trust?

The Appointor of a Trust generally has the power to remove the Trustee or add or change any Trustees, so they have ultimate control of the Trust. Depending on the terms contained in the Trust Deed, the Appointor may also be required to approve any changes the Trustee intends to make to the Trust Deed. The Appointor’s role is to protect the Trust, ultimately for the best interests of the beneficiaries.

The Trustee is the person or company named in the Trust Deed who has control over the day-to-day operations of the Trust or the role of administering the Trust. The Trustee holds and manages the Trust’s assets on behalf of the beneficiaries of the Trust. It can buy or sell assets in the Trust, make loans, borrow money and much more. They are responsible for also ensuring the operations of the Trust comply with the terms and powers granted to them outlined in the Trust Deed. In a Discretionary Trust, the Trustee can decide to whom the Trust will pay its capital and income.

If the Trustee is the one who administers the operations and holds the assets, why is the role of the Appointor so important?

This aspect is an often misunderstood and overlooked aspect of a Trust. Even though the Trustee is the one that manages the daily operations of the trust and holds the assets on behalf of the beneficiaries, the Appointor is ultimately the one who has the power to remove, change or add a Trustee. By having that power, it can remove the “administrator” and appoint a new one.

Why would a Trustee of a Trust need to be removed or changed?

There are different reasons why a Trustee of a discretionary Trust may need to be removed, changed or a new Trustee added. Common reasons being the death of a Trustee, the winding up of a Trustee company, bankruptcy or insolvency of the Trustee or to replace a Trusteethat is not acting in the best interests of the Trust or its beneficiaries.

In any of the above circumstances, the Appointor has the power to appoint a new Trustee and remove a Trustee for the ultimate benefit of the beneficiaries. Without an Appointor, it may be unclear who, if anyone, has the power to makes these changes for the Trust.

If this happens the Trust may not be able to continue to operate. For example, if the sole Trustee of a Trust passes away  there is no Appointor named in the Trust who has the power to appoint another Trustee. Usually control of the Trust would pass to the Executors of the deceased Appointor. This may mean that the Trust is then controlled by people who may not have the experience or knowledge to operate the Trust in the best interests of the beneficiaries or do not understand what the Trust’s assets are. This can leave the beneficiaries in a vulnerable position.

We see now the importance of the Appointor of a Trust, but what other aspects are crucial in relation to the Appointor?

Apart from the importance of having an Appointor of a Trust, it is crucial that the Trust also contains succession clauses to protect the Trust and its beneficiaries in the event that something happens to the Appointor such as death or mental incapacity.

Well written succession clauses in the Trust Deed will detail who will be appointed as the Appointor in the event the Appointor can no longer act. If there is no succession clause, the Trust is then left without an Appointor and nobody to control and make the decisions of the Trust. This means the Trust may not be able to operate or may be operating in breach of the Trust Deed terms.

Sounds simple, but when companies are named as the Trustee, things can get even more complicated. What do we mean?

It is common for companies to be appointed as a Trustee of a Trust. Whilst this may seem like no big deal, this is where things can start to get messy.

The shareholders of the trustee company, particularly if the shares are held beneficially for the shareholders, have the power to remove or add directors of that company, who in turn act as Trustees of the Trust and determines to whom the Trust pays its income and capital. This can quickly become very messy.

This is where having an Appointor overseeing the Trust is crucial to ensuring that the Trustee, is acting in the best interests of the Trust.

Case Study

The case study below is a perfect example of the importance of having an Appointor of a Trust and a Trust Deed that contains succession terms for the Appointor.

Client A had a Discretionary Trust which earned significant income. Their company ABC Pty Ltd is the Trustee of the Trust. Client A was a co-director of ABC Pty Ltd. Client A set the trust up with their younger brother as Appointor of the Trust and as a co-director of ABC Pty Ltd. Client A believed it would be easiest to set it up this way. However their brother had no involvement in the operations of the Trust. Both Client A and their brother were in agreement that the brother had no part in the trust or income of the trust. Client A had been administering the Trust in this capacity with no apparent problems for 10 years. Technically client A had no right to administer the Trust.

In 2025, Client A’s brother unexpectedly passed away. This now meant that the Appointor of the Trust had passed away. Client A came to us to seek legal advice on what this meant for the Trust.

Upon looking at the Trust Deed and the company details of ABC Pty Ltd, we came across a few complications that put Client A at high risk. We picked up the following issues.

·         The Trust Deed named Client A’s brother as Appointor. The Trust Deed terms stated that in the event of the death of the Appointor, the Appointor’s executor would take their place; and

·         Whilst Client A and their brother were directors of ABC Pty Ltd, the late brother was actually the sole shareholder of this trustee company.

What did this mean for Client A?

This meant that someone completely different was now in control. The brother left no Will. His wife would be entitled to be his administrator. Under the terms of the Trust, the wife was now Appointor of the Trust. Client A had no control.

It also meant that as the late brother was the sole shareholder of ABC Pty Ltd,  the brother was entitled to all the shares. That meant the wife was then the beneficial shareholder of the company, as administrator for Client A’s late brother. Client A had no power over both circumstances.

This left Client A in an extremely risky position and very vulnerable to losing all the income and capital in their trust. This is because as it is a discretionary trust “the wife” could pay all capital and income to people other than client A and his children. The Trust has initially been set up with this purpose in mind.

Result:

We were able to find a solution for Client A which protected the income and capital of the Trust and put Client A back in control of the Trust and the company. This, however, could have very easily taken a different path and left Client A at a substantial loss.

Do you have a Trust?

If you have a Trust, you will see from the above case study why it is crucial to ensure that your Trust Deed is reviewed carefully and that the Trust Clauses are carefully written so you are not left in a risky and vulnerable position like Client A!

If you have not had your Trust Deed reviewed lately, or thinking of setting up a Trust, contact our Trust expert today.