Family Trust – Guardian & Appointor Update – includes succession planning

Why update the Appointor and Backup Appointor?

 

You update and change the Guardians/Appointors for many reasons.

• You may wish to retire as an Appointor & Guardian.
• Perhaps you wish to add your spouse to be an Appointor with you.
• After you and your spouse die who is in control? Your children? Then make your children the Backup Appointors.

 The Appointor & Guardian Update:

• Removes Appointors & Guardians
• Removes dead Appointors & Guardians
• Confirms remaining Appointors & Guardians
• Allows for succession planning – Backup Appointors

Dead Appointors?

Example:Mum and Dad are the Appointors. Mum dies. Dad continues as the Appointor. Dad is happy to control the Family Trust by himself. Nothing in the Trust Deed or Mum’s Will states anything different. Therefore, all Dad is doing in the Appointor Update is formally removing Mum as Appointor. Mum’s executor or next of kin signs on Mum’s behalf. The Family Trust may have a system or procedure for dealing with dead Appointors.

Any Stamp Duty issues when you change the Appointor?

Stamp Duty is a State tax. It is payable when assets are transferred from one person to another person.

Capital Gains Tax, is a federal tax. CGT is payable when you ‘dispose’ of an asset.

However, by changing the Appointors you generally do neither. The class of beneficiaries remains the same. There is no change to the object or purpose of the Family Trust. There is generally no ad valorem Stamp Duty or CGT payable in Australia. (The Latin phrase “ad valorem” means “according to value.” Ad valorem taxes are levied on the market value of some of the assets in your Family Trust.)

Most Family Trust deeds merely define the Appointor by naming an actual person. E.g. John Edward Smith.

Less commonly the Appointor is defined by a position. For example, the “Appointor is the Default Beneficiary”. If this is the case speak with your accountant.

No resettlement when you change the Appointor of a Family Trust

Our letter of advice, that comes with this document, confirms that there are no generally no ‘resettlement’ issues. The law firm’s letter of advice comes with every document you build on Legal Consolidated’s website. We are a law firm and we are responsible for your document.

Any Capital Gains Tax when you change the Appointor?

Stamp duty is a state tax. Capital Gains Tax is a federal tax. The ATO oversees the collection of CGT.

The ATO issues two main Private Rulings: Authorisation numbers 1011616699832 and 1011623239706. This is with particular reference to the ‘resettlement’ CGT events E1 and E2.

They confirm that there is usually no tax resettlement on the change of an Appointor. There is generally no ‘resettlement’. And therefore generally no CGT. This is where:

• The Family Trust deed empowers the Appointor to resign and appoint new Appointors
• The change of the Appointor is allowed under the Family Trust deed
• The change of Appointor is just procedural. Much like the change of a trustee of a Family Trust
• There is no change to the beneficiaries (trust’s ‘objects’), the trustee’s purpose and the terms of the Family Trust deed

The Australian courts say that there is no resettlement anyway

The ATO is just a regulator. It is not the final interpreter of the law. The Australian Courts interpret the law. And their decision binds the ATO. This is whether the ATO likes it or not.

FCT v Clark [2011] FCAFC 5 is court authority that changing an Appointor generally does not trigger any tax issues.

In Clark’s case, there are major changes to the trust deed, including:

• Change of trustee
• Change of control in the trust
• Change in the trust assets
• Change in the unitholders of the trust between two income tax years

But the court said that they did not cause a resettlement of the trust for tax purposes.

But this is on the basis that of the continuation of property and beneficiaries. They are ascertainable at all time.

The court went as far as to say that there is a resettlement only if the trust is deprived of all assets and then ‘re-endows’ them on a different set of people.

The ATO’s response to Clark’s case is Taxation Determination TD 2012/21. It is rather disappointing. And smacks of sour grapes by the ATO. In particular, the ATO makes no direct comments on the Appointor changing. And none of their examples deal with a change in the Appointor or succession planning.

Rather, blandly, the ATO confirms that, unless variations cause a trust to terminate, then there is no resettlement for tax purposes.

Trustee vs Appointor – which one controls the family trust?

Who is in charge? Is it the Trustee that ‘owns’ the assets? No, the Appointor is god. The Appointor bosses the Trustee. The Trustee looks like it is in control, as it has the assets in its name. However, the Trustee takes it marching orders from the Appointor.

The Appointor can sack the Trustee on a whim. This is for no reason at all.

The Deed of Variation of the Appointor:

• Changes an Appointor; and
• Puts succession planning in place. This is after the Appointors dies, goes bankrupt or loses mental capacity

Appointor, Guardian, Principal, Controller, Protector and other names for ‘god’

The wonderful thing about trusts is that they suffer very little meddling by the government. You are free to put into your trust deed pretty much anything you want. (That is why it is important to have a specialist law firm, like Legal Consolidated, prepare your trust deeds.)

There are two main persons in a Family Trust: ‘controller’ and the trustee. The ‘controller’ of the trust acts like a god. It can do whatever it wants. It ‘controls’ the trust. Depending on who prepared your Family Trust deed the ‘controller’ may be known by many different names.

Eight common names for a Controller of a Family Trust

1. Appointor
2. Guardian
3. Appointor and Guardian
   • Appointor hires and fires the Trustee.
   • While the Guardian tells the Trustee gets the income and capital to each year.
4. Principal
5. Governor
6. Controller
7. Protector
8. Trustee – uncommon, except for Deeds older than 1972.

Can the Appointor be BOTH mum and dad?

Yes, commonly mum and dad are Appointor together. But you can have as many Appointors as you wish.

You also have as many Backup Appointors as you wish. The Backup Appointors are often your children. And commonly the family trust for the Backup Appointors use this expression in the Family Trust Deed:

‘the union of Dad Full Name and Mum Full Name’.

Can the Appointor be a company?

It is becoming more common to set up a company as a dedicated Appointor of a family trust.

So, for example:

• Mum and dad remain as Appointors, in the first instance.
• The company is the Backup Appointor. Your children each hold the same number of shares in the company.
• When mum and dad die the company takes over the control of the Family Trust. The company is the new Appointor.

Obviously, the shareholders have ultimate control of the company, not the directors.

Commonly you would also have a Shareholders Agreement to lock in the rules. If the beneficiaries getting the shares are minors then the executor(s) in mum and dad’s Wills control the shares (and therefore the assets in the Family Trust). They can only act in the best interests of the minor children. (Whether you have a 3-Generation Trust Will the position is the same.)

Q: Does the company need to be set up in any specific way to act as the Appointor? Or is it a generic company?

All companies prepared by Legal Consolidated can be used as an Appointor of a Family Trust. However, you can not expose the company to anything that may make it insolvent. So you should not let the Appointor company operate a business. This is either in its own right or as a trustee. Because running a business is high risk. The company should serve no purpose other than being the Appointor (or future Appointor) of the Family Trust.

To labour the point, obviously, the Appointor company should:

• NOT be the trustee of the Family Trust.
• NOT be beneficiary (it should not be a bucket company)

The Appointor company should hold no positions. This is other than to be the Appointor (or Backup Appointor) of the Family Trust.

If you do not have a Legal Consolidated company, then check with the law firm that prepared that company. And get in writing whether it can be used as an Appointor. Or just update the Company Constitution.

/company-as-trustee-of-family-trust/

Q: You mention “Commonly you would also have a Shareholders Agreement to lock in the rules.” – what do you mean by this? Can we also build this document on your website?

You can build the Shareholders’ Agreement here.

Succession planning in a family trust using a company as the Backup Appointor:

1. Incorporate a company.
2. Make your children the shareholders of the new company.
3. Build this Appointor Family Trust update:
   • You and your spouse remain as Appointors.
   • The new company is the Back-up Appointor.

Can I change the Backup Appointor at a later time?

The Appointor is god. Or rather the current Appointors are gods. The Backup Appointor is nothing. You can keep changing the Backup Appointor.

We talk about the Trustee of the Family Trust remaining in that capacity at the whim of the Appointor.

Similarly, the Backup Appointor can be changed at the whim of the Appointor. You just build another Appointor Family Trust Variation Deed.

Do the Backup Appointors of a Family Trust need to know when they are nominated or removed?

At law, there is no requirement to tell the next controllers of the Family Trust who they are. But it is common sense to let them know. And to educate and train them on how Family Trusts operate.

Otherwise upon your death (as the Appointor) it is a steep learning curve to have to deal with your death and the control of this strange vehicle called a Family Trust. 

I get annoyed when well-healed parents tell me that their children are not ‘money savvy’. Or they are only a housewife or butcher.

My dad was a butcher. During WW2 he was forced to leave his London school. He didn’t get much education past year 7. But he was wonderful with money. He taught me the value of investing and running a business at a young age.

If your children are not ‘money savvy’ then you do something about it. You are the parents.

Should a Will, 3-Generation Testamentary Trust or Testamentary Trust ‘control’ my Family Trust?

A Will gives away what you own.

• But you do not “own” the assets in your Family Trust.
• You “control” the Family Trust because you are the Appointor.

The correct way to deal with the succession of the Appointor is to build a Deed of Variation.

It is wrong and foolish to allow your Will (or any trusts formed under your Will) to control the succession of your Family Trust. The only way that you should update or direct who is the controller of /company-as-trustee-of-family-trust/ your family trust is via a Deed of Update. This is the document you are about to start building. Just press the blue button above to start the process. Read the hints as you build the document.

Succession Planning in a Family Trust

This is the cast of players in a Family Trust

• Trustee – usually a company for asset protection
• Appointor/Guardian/Principal – usually Mum and Dad
• Backup Appointors – often all your children
• Default (Specified) Beneficiaries – usually the ‘children of Mum and Dad’
• General Beneficiaries – about 400,000 in a modern Australian family trust

So let’s have some of these players die:

• The Trustee dies. Or is ‘wound up’ if a corporate trustee. Nothing happens. The Appointor merely appoints a new trustee. The trustee is a puppet. It is replaced at the whim of the Appointor.
• Let’s now have some of the Default Beneficiaries and General Beneficiaries die. Nothing happens. The Appointor merely instructs the Trustee to distribute income and capital to other beneficiaries. This is at the end of each financial year.
• Let us now have the Default Beneficiaries die. Nothing happens. The Appointor merrily, each financial year, instructs the Trustee to distribute income and capital to those beneficiaries that are on the lowest marginal tax rate. And then to a corporate beneficiary if the Appointor runs out of family members on low marginal tax rates.
• Well, surely the climax to this story is the death of the Appointor. So let’s have the Appointors die. Nothing happens. The assets in the family trust just stay where they are. They cannot move. There is stamp duty and Capital Gains Tax if the assets in the family trust are moved. But god, the Appointor, is dead.
  • All is lost? No. 
  • The Backup Appointors now start controlling the family trust.

Does a Will have a role in changing the control of a Family Trust?

• There is a misconception that the “Appointor” or controller of the family trust ‘owns’ the family trust assets. This is untrue. 
• Rather the Appointor/Guardian/Controller ‘controls’ the Family Trust. And that is clever, tax effective and great for asset protection. 

A Last Will and Testament should not have any control over a family trust. Badly drafted Wills may state:

“In the event of my death, the Appointor of my Family Trust will be my executors”.

That is silly. It is wrong. A Will is a grubby little document. It can be challenged by many family members. Even with a Considered Person Clause the Will can still be challenged.

In contrast, a Family Trust can only be challenged by your spouse or de facto.

So you should not let the Will contaminate the succession planning of a Family Trust. Rather you either:

• Do a complete update of the Family Trust – Appointor, Trustee & Deed Update; or
• Only update the Appointor/Guardian/Controller by pressing the above Blue button and start building a Deed of Variation to update the Appointor and Backup Appointor

When Dad dies I want one of the properties in the Family Trust. And my sister wants the other property

Often after your parents die the children want to pick through the Family Trust assets and take what they want. However, unless a 3-Generation Testamentary Trust where you can do that, this is difficult in a Famly Trust. In a 3-Generation Testamentary Trust in a Will the children, without stamp duty and CGT, can divi up the dead person’s assets, as they like.

A Family Trust is great for a Mum and Dad. But it is hopeless for the children. You can’t ‘split’ the Family Trust assets.

If you do want to take ‘control’ or ‘ownership’ of a particular asset in a Family Trust then, on real estate, you will generally pay stamp duty (about 4.5%) and Capital Gains Tax. That is a heavy and tragic burden.

Upgrade your Wills and Power of Attorney and other legal documents

Appointors (and Backup Appointors) should review and upgrade their:

• 3-Generation Testamentary Trust Wills (if you already have a Legal Consolidated Will then you can update it for free, as often as you wish)
• Enduring Power of Attorney
• Medical POAs, Guardianships, Directives & Medical Treatment Decision Maker
• Loan Agreement between family members
• Loan Agreement with the Family Trust
• Deed of Gifts and Deeds of Debt Forgiveness – for any money that the family trust owes to beneficiaries (Unpaid Present Entitlements)

And while you have a company as trustee of your Family Trust then upgrade your:

• Power of Attorney for a company
• Shareholders Agreement
• Division 7A Loan Deed

My children are under 18 years of age, can I still make them backup Appointors?

After the Appointor or Appointors all die (or go bankrupt or lose mental capacity) your Back up Appointors take over. If you have one child and expect more children then commonly the Backup Appointors are “Child One Full Name” and “Unborn Children”.

But what happens if the Appointors die and the Back-up Appointors are all under 18-year-olds? That is fine if you have a Legal Consolidated deed. Their position is protected until they turn 18. In the meantime, the minor’s legal personal representative (guardians) holds that position in trust for those minors. Other law firms may draft the deed of variation differently. At all times that person or persons always act in the children’s best interests. The assets in the Family Trust are protected for minors.

If my spouse and myself both go bankrupt or lose mental capacity we lose control to our Back-up Appointors. Do we get it back when we come out of bankruptcy or regain mental capacity?

No, you do not get control of the Family Trust back. There are bankruptcy risks to setting up the Appointors succession plan in that way. Choose your co-Appointors and Back-up Appointors carefully.

Can the Appointor control the corporate trustee of the Family Trust?

The trustee of a family trust is either a:

• Human – called a ‘human trustee’
• Company – called a ‘corporate trustee‘

The Appointor is god. The Appointor can sack the trustee. So the most important part of control and succession planning is the Appointor.

But it is good if the current Appointor ‘controls’ the trustee as well. This may not always be possible because:

1. Asset protection
2. Family law
3. The trustee of the family trust is a human – and you cannot control a human. You can own the shares in the corporate trust, but you cannot own shares in a human
4. Even if the trustee is a company and you own the shares in the company, a company can be replaced at any time, by the current Appointor. This is generally for no stamp duty and no Capital Gains Tax

Should the Backup Appointor control the Trustee of the Family Trust when the Appointor dies?

It is also useful if, when the Appointor dies the “Back up Appointor” controls the trustee as well. Again, this is often not possible because of the 4 reasons above. 

Specific Gifts in a Will are not usually a good idea, as it dates the Will. However, the ‘last to die’ Appointor can gift, in their Will, the shares in the corporate trustee to the designated Back up Appointor. A better approach is for the ‘last to die’ Appointor to leave a signed, but undated, transfer form for the shares to the designated Back up Appointor. Your accountant can prepare this blank share transfer for you.

If the Back-up Appointors are all the children and the children are the residuary beneficiaries in your Will then this becomes even less important.

The reason I am not that concerned with the control of the trustee of the Family Trust is that:

1. The Back-up Appointor controls the right to hire and fire the trustee
2. Having the shares in the corporate trustee going to the Back up Appointor gives the impression that the Back up Appointor is guaranteed control of the Family Trust. And that is certainly not the case.

Can Mum and Dad secretly change the Backup Appointors in their Family Trust?

Mum and Dad can rewrite their Wills and POAs as often as they wish, for free. They can, for example, cut out children and loved ones from their Wills.

Similarly, Mum and Dad, as the current Appointors, can build another Deed of Variation of their Family Trust and change the Back up Appointors.

• Change the Back up Appointors: While the Appointor or Appointors are alive and of sound mind, they can change the succession planning of their Family Trust as often as they wish. This is no different to them changing their minds in a Will.
• Change Trustee: While not so important, similarly, the Appointor can change the trustee of their Family Trust, as often as they wish. There is normally no stamp duty or CGT when a trustee of a Family Trust is changed.

And Mum and Dads do change their trustees. This is he particularly the case if the wrong child now or will have control of the corporate trustee of the Family Trust in the future.

Just as you do not know if and when a parent has changed their Will, you do not know if your parents have changed the succession planning of their Family Trust.

Legal Consolidated only acts for the current Appointors

Legal Consolidated in the drafting of this Deed of Variation or any update of a Family Trust, only acts for the current Appointors. Legal Consolidated does and can only acts for the Appointors. Legal Consolidated does not act and can not give advice to the Back up Appointor.

The Back up Appointors are on their own. They should seek their own independent legal advice. This is from another law firm.

Good news: a trustee-in-bankruptcy cannot take on the role of Appointor – Harris v Rothery

The current law is that the trustee-in-bankruptcy cannot stand in the shoes of the Appointor.

The case of q [2013] NSWSC 1275 confirms that the trustee-in-bankruptcy cannot take over the job of the Appointor. This is because the Appointor is not an ‘asset’. A ‘power’ over assets does not itself constitute ‘property’. The role of the Appointor is not part of the insolvent’s estate. Instead, the role of the Appointor is an ‘obligation’. The job of Appointor is one of ‘fiduciary’.

Legal Consolidated Family Trusts, Appointor update and general update comply with Harris v Rothery. 

Appointor in the Family Trust goes bankrupt. Does the Trustee in Bankruptcy now take control of the Family Trust?

The Appointor is god. What happens if the Appointor goes bankrupt (if a human) or insolvent (if a company)?

What if the trustee-in-bankruptcy gets control of the Family Trust’s Appointor position? The trustee-in-bankruptcy merely instructs the Trustee (puppet) to distribute 100% of the Family Trust assets to the bankrupt person. Then trustee-in-bankruptcy then gets all the Family Trust assets.

As the law currently stands the trustee-in-bankruptcy cannot get its hands on the Appointor position. This is the case even if the Appointor is bankrupt. Legal Consolidated Family Trusts, Appointor updates and general updates comply with this approach.

Can the trustee-in-bankruptcy control the Appointor?

What happens when you go bankrupt under the Bankruptcy Act?  All your assets are available to distribute to your creditors. This includes:

“the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit…”.

Legal Consolidated Family Trusts, Appointor updates and general updates comply with this rule.

The case of Re Burton states the right of an Appointor is not an ‘asset’

The Appointor’s position is a ‘power of appointment’. It is considered an obligation or a job. Therefore, it is not considered ‘property’. And therefore, it cannot vest in the trustee-in-bankruptcy. See Re Burton; ex parte Wily v Burton (1994) 126 ALR 557.

In Re Burton, the trustee-in-bankruptcy argues that Mr Burton is the Appointor. He is also a beneficiary of the Family Trust. He has the right to direct the trustee to distribute all capital and income to himself. And therefore the trustee-in-bankruptcy could scoop up the asset from Mr Burton. 

The Court states that the Appointor has fiduciary powers. And must be exercised for the benefit of the beneficiaries. 

The Appointor’s powers are exercised only to further the purpose of benefiting the beneficiaries.

The powers of an Appointor are not ‘property’. And as such the position and the right cannot pass to a trustee-in-bankruptcy.

The above case is confirmed in Lewis v Condon; Condon v Lewis [2013] NSWCA 204.

Can the Trustee-in-Bankruptcy force the Trustee to distribute money to the bankrupt person?

If it is a Legal Consolidated Family Trust or deed of variation then the answer is, thankfully, no. 

We draft our Family Trust deeds under the Dwyer v Ross (1992) 34 FCR 463 rule. Therefore, a trustee in bankruptcy cannot compel the trustee of a trust to exercise the trustee’s discretion in favour of a bankrupt beneficiary. Under a Legal Consolidated deed, it would be a breach of the trustee’s duty. This is to the trust’s solvent beneficiaries. It is against the interests of the beneficiaries as a whole to so exercise the power in that way.

But the laws of bankruptcy over an Appointor may change, anytime

Nevertheless, the above doomsday scenario is my fear. I think the laws will change. This is why with a Legal Consolidated:

• Family Trust Deed; and
• Family Trust update

the Appointor automatically loses their position as Appointor. This is if the Appointor goes bankrupt or insolvent.

We are a conservative taxation law firm. We do not leave anything to chance. We assume that future laws will change. That is to the detriment of our clients. We put asset protection into our Family Trust deeds, accordingly.

Will the bankruptcy laws for Appointors change?

The Court in Blenkinsop v Herbert [2017] WASCA 87 attacks the Appointor/Guardians by looking at:

1. Whether a Guardian of a discretionary trust is a fiduciary; and
2. The nature of the Court’s power to remove a Guardian.

Facts of Blenkinsop v Herbert

Fred and Judith Blenkinsop start two discretionary trusts during Fred’s lifetime. (Trusts that start while you are alive are ‘inter vivos’. Trusts that start at your death are in your Will. These include 3-Generation Testamentary Trusts.)

While it is usually your children, in this instance Fred, Judith, and their five children are the primary beneficiaries of both Trusts. All 7 of them are the default beneficiaries.

Both Family Trusts have corporate trustees. Dad Fred and Mum Judith are the directors. This is until Fred dies.

The trustee’s powers for both Trusts are broad. But, as is the case for Family Trusts, such powers are subject to the  Guardian’s consent.

Fred sadly dies in 2004. Judith and one of her daughters became directors of both corporate trustees.  More importantly, Judith becomes the Guardian and Appointor of the Trusts.

For the next five years, both Trusts are controlled by Judith. Judith uses the assets in the Family Trust as if they were her own. This is common and usual. 

Judith, the mum is getting older and wants succession planning.

She makes her five children all directors and shareholders of both trustee companies.

Judith, the mum, is going to set up a Shareholders agreement. But it is never signed.

Two years later the corporate trustees sign a deed of variation. Judith is the Remaining Appointor. Her five children are the New Appointors. There are now 6 Appointors of both Family Trusts.

One of the children gets greedy. There is a director’s meeting of the corporate trustees. Motions require Trust income to only go to the greedy child. Mum goes to court to stop this. She asks the Court to remove the Corporate Trustee and the greedy Guardian/Appointor. This is under the Trustees Act 1962.

• The primary judge agrees with mum. But only as the trustees of the Family Trust. The corporate trustees are removed. They are replaced by independent trustees.
• The Court refuses to touch the Appointor/Guardians. The Court looks at two critical questions:
  1. Did the settlor objectively intend the powers of the Guardian to be fiduciary? Must the Guardian exercise the Guardian’s huge power for the benefit of the beneficiaries?
  2. Did the settlor intend that the trust might operate without a guardian, having regard to the identity of the Guardians and the obligation that they act jointly and unanimously?

What is the role of the Appointor/Guardian 

His Honour set out five issues. They confirm that the trust deeds, as varied, show an objective intention that the individual guardians may exercise their powers. But only in the interests of the beneficiaries and not in their own interests:

1. The Appointor/Guardian powers are given by the Family Trust deed of trust. This is for the execution of the Trusts
2. The Guardian’s role is supervisory.  The Guardian only has the power to grant or withhold consent
3. Generally, the powers which the trustee may require the consent of the Guardian to exercise are powers under which the trustee may prefer one or more beneficiaries to the exclusion of others
4. The guardians are all beneficiaries [this is common for most Australian Family Trusts}
5. Any decision of the guardian to grant or withhold consent to a particular action of a trustee affects one or more of the Guardians in their capacity as beneficiaries. [Is this a conflict?] 

His Honour states that the trust deeds, as varied, give the power of guardians upon beneficiaries, to allow each of them to have the right to consent or withhold consent to decisions that may benefit only one or more of them.

What do we learn from Blenkinsop v Herbert?

His Honour found that to remove the Guardians, so that there was no Guardian under the trust deed, would be to effect a substantial amendment to the trust deeds and that the intention of the trust deeds was to fetter the discretion of the trustee.

Whilst the number of Guardians, and the requirement that they act unanimously, may be impracticable, to remove them on those grounds would be contrary to the intention of the trust deed and could not be done.

Judith, the mum, is not happy. She appeals to a higher court. Blenkinsop v Herbert stage two

The Court of Appeal agrees with the primary judge’s decision. The Guardians cannot be removed.  It considers the role of a Guardian. And the fiduciary powers: 

• Under general trust law, the concept of a Guardian does not have a fixed meaning or content.  The role of a Guardian under a trust is defined by the trust deed.
• Turning to the issue of whether or not a Guardian is a fiduciary, it was held that when the donee of the power is entitled to exercise that power for his or her own benefit and is not required to have regard for the interests of others, the exercise of the power is personal, and not attended by any fiduciary duty.
• Conversely, where the donee of the power is obliged to act only in the interests of, and for the benefit of, others, the power will be fiduciary.
• When the power is an administrative power to appoint new trustees, then the power on its proper construction may be regarded as fiduciary.

The Court is suggesting that it has the power to remove a Guardian. But only if the Guardian had a fiduciary power.

Interestingly, it seems that guardians are not always fiduciaries.  The duties and powers of the Appointor/Guardian are considered. And the facts of how the Family Trusts have been set up and for what ‘purpose’.

How do you decide if Guardian is fiduciary? The Court looks at the Family Trust Deed. It seeks to find the purpose of the trust. It seeks to carry out the trust’s purpose. It tries to give the Family Trust meaning. It does not want to amend or change the Family Trust’s purpose.

Does my Family Trust or any variations allow for the changing of Appointors?

Most modern Family Trust deeds allow for Appointor succession. If there is no power in the Family Trust deed for Appointor succession then you can usually find a general power of variation.

If necessary the Family Trust deed may need to be updated to allow for Appointor succession. 

However, any Appointor changes must be permitted by the Family Trust deed or a variation of a Family Trust deed: Mercanti v Mercanti [2016] WASCA 206.

In Mercanti amendments to two Family Truss are considered. Each trust deed had a different variation clause.

1. One variation clause is broader. It allowed the trustee to “vary all or any of the trusts, terms and conditions”. The power to amend was sufficiently wide to change the Appointor.
2. The other variation clause is restricted to allowing the trustee to “vary all or any of the trusts”. This power to amend is considered too narrow to change the Appointor.

The amendments considered in that case were allowed in the trust with the broader variation clause, but not the other.

Should the power to amend the Family Trust deed be not sufficiently broad, then the trustee may not be allowed to amend the deed in a particular. This may result in the amendment being invalid.

Look at the original Family Trust deed, as well as each subsequent deeds of variation. The document assumes that the Appointor, Guardian, Principal or similar power holder has the power to retire and appoint a replacement Appointor in its place. If you are unsure of this position, it is recommended that you seek legal advice.

Five rules on whether you can update the Appointor clause

1. Read the Family Trust deed.
2. The rules of a commercial contract apply to deeds of trust.
   See:
      * Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, 275 [59] (Gummow and Hayne JJ), 286 [102] (Heydon and Crennan JJ)
      * Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93, [12]–[16] (Kyrou, Ferguson and McLeish JJA).
3. Therefore, if the words of the Trust deed are unambiguous, they are construed according to their ordinary and natural meaning, in the context of the document as a whole.
   See:
      * Montevento Holdings Pty Ltd v Scaffidi [2012] HCA 48; (2012) 246 CLR 325, 332 [25] (French CJ, Hayne,       Crennan, Bell and Gageler JJ)
   * Re Rouse [2019] VSC 792, [87] (McMillan J)
4. In Schreuders v Grandiflora Nominees Pty Ltd, [2016] VSCA 93 the Court of Appeal observed:
        “[T]rust instruments are to be given their natural and ordinary meaning unless they have a special or technical meaning. The terms of an instrument must be construed in the context of the entire document and in such a way that renders them ‘all harmonious one with another”. (page 21)
5. You need to give effect to the expressed intention of the parties. This is by reference to the words used in the Trust Deed. (Don’t concern yourself with the parties’ subjective intentions.)
          See Gummow and Hayne JJ in Byrnes v Kendle (2011) 243 CLR 253:

“The fundamental rule of interpretation of [a trust deed] is that the expressed intention of the parties is to be found in the answer to the question, ‘What is the meaning of what the parties have said?’, not to the question, ‘What did the parties mean to say?”

Lin & Ors v Lin & Ors (No 2) allows the Appointor to change the Appointor and Back-up Appointor

Can the Family Trust be amended to change the Family Trust controlling person? You need to read the Family Trust deed and variations.

Lin & Ors v Lin & Ors (No 2) [2022] VSC 542 helps answer that question.

Facts of Deed Lin v Lin (No 2)

The Family Trust “identifies the father as the appointor of the family trusts, and sets out the following conditions:

Appointor:

 

Firstly: [the father] but only during his lifetime PROVIDED THAT [the father] may by Deed or Will (whether revocable or irrevocable) nominate any person or persons in substitution for himself to exercise all of the said powers during any period (whether or not extending beyond the life of [the father]).

 

Secondly: After the death of [the father] THE PERSON OR PERSONS NOMINATED BY HIM as herein before provided.

 

Thirdly: After death [sic] of [the father] and in default of such nomination by Deed or Will as aforesaid THE LEGAL PERSONAL REPRESENTATIVE of [the father] (or in the event of a dispute between those persons constituting the legal personal representative of [the father]).

 

(emphasis in original).”

Decision of Deed Lin v Lin (No 2)

The Court looked at the Deed of Variation to change the appointor:

• there is express power for an appointor to appoint a new appointor
• there is also a power for an appointor to appoint a new appointor –  it is implicitly acknowledged in the language of the Family Trust deed:
  • “The Appointor and on the death of the last surviving Appointor such other person or persons as shall have been appointed to act as Appointor…”
• the father resigns as appointor – it is effective
• on a proper construction of the Family Trust deed,  the appointment of a successor appointor by the father did not lapse upon the death of the father.  That is, the Family Trust deed did not require that any nomination of a substitute appointor state a defined period for such nomination to operate nor specify whether that nomination is intended to extend beyond the life of the father. The words “during any period” are permissive. They are not mandatory
• the words “whether or not extending beyond the life of [the father]” are of a similar nature

Therefore the deed appointing a successor appointor to the father:

• stating his desire to resign as appointor; and
• irrevocably appoint his successor with immediate effect

is effective.