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Trusts - Who Should be the Appointer?

Discussion in 'Accounting, Tax & Legal' started by austing, 30th Jul, 2007.

  1. austing

    austing Well-Known Member

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    Hi Gang,

    Since the Richstar case there seems to be a lot of confusion about who should be the appointer of a Trust. And quite frankly after wading through legal opinion from a variety of sources it doesn't seem like there is any unanomous agreement.

    However there seems to be some leaning toward now having multiple appointers. For example, both primary beneficiaries or both primary beneficiaries and an independent third party such as a trusted advisor or friend. The other option of course is, if the spouse is a low risk party, then he/she could be the sole appointer.

    What is very worrying is the number of advisors that seem to be suggesting an indepenent third party such as an accountant, lawyer or friend be the sole appointer. Bloody hell this is damn right scary advice in my mind.

    So given the uncertainly of this issue I thought it would be good to get others views on this subject.

    Also, if an existing appointer(s) decides to appoint a new appointer(s) does this cause a resettlement of the trust?

    So fire away please.

    Thanks - Gordon
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Our advice when setting up our discretionary trust (from a very respected accountant in Canberra - I think you know who I'm referring to Gordon), was to have both of the primary beneficiaries (ie. my wife and myself) as the appointers.

    I haven't done any more research, so I can't comment on the implications of this and whether best practice has changed in the 6 years since we set that up.
     
  3. OLI

    OLI Well-Known Member

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    You'd be crazy to have an indepenent third party such as an accountant or lawyer as your sole appointer! That sounds like very dangerous advice.

    I've heard that it's best to have three appointers - yourself and two people you trust. I've also read that an odd number of appointers is preferable in case a decision can't be made (majority rules).

    I haven't taken this advice and have put myself as the sole appointer in one trust and used the primary beneficiaries as the appointers in another (i.e. - my wife and myself, like Sim has done).

    The following link might help answer what constitutes resettlement of a trust:

    Creation of a new trust - Statement of Principles August 2001
     
  4. austing

    austing Well-Known Member

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    Hey Sim,

    Thanks for your reply.

    That still sounds like great advice although I'm but a simple layperson.

    In the past numerous other advisors seemed to be quite happy for there to be a single appointer (including the risk party) even where there was more than one primary beneficiary. If it turns out because of recent events that under bankruptcy etc the creditor can step into the shoes of the bankrupt party (as appointer) then they don't have total control of the trust's assets. The previous appointer's spouse (or existing joint appointer) would still have 50% control.

    In relation to this it also seems that where there is a Corporate Trustee the risk party should not be a Shareholder. From what I understand it is preferred that the risk party be the Trustee Director.

    Cheers - Gordon
     
    Last edited by a moderator: 30th Jul, 2007
  5. austing

    austing Well-Known Member

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    Hey Oli,

    I missed your post whilst I was typing my reply to Sim.

    Our previous trust has the low risk party as appointer. However we are in the process of setting up another one. I have made the same decision as you and decided to have my wife and me as joint appointers. I'm not keen at all with having a third party involved.

    But regardless of my view I thought it would be an interesing topic especially for those who are about to setup their first trust so they don't blindly accept any advice.

    I'm sure our resident guru Nigel may be able to provide some great info on this.

    Cheers - Gordon
     
  6. MattR

    MattR Well-Known Member

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    Austini aka Gordon

    What happens if you and you're wife split with respect to the Trustee?
     
  7. austing

    austing Well-Known Member

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    Hi Matt,

    I'm not totally clear on what you are asking. Is it only trustee (director vs Shareholder etc) issues you are inquiring about or Trust appointer related issues?

    I'm no expert on such matters but in regards to asset division from what I understand Family law will see through any such structure.

    I must admit when it comes to what would happen if marriage breakdown occured I don't get too concerned. My wife is the high income earner and should anything ever happen I have absolutely no problem with her having half (or more) of the assets. But we've been together a very long time now and I sincerely hope that this never happens.

    Cheers - Gordon
     
  8. Nigel Ward

    Nigel Ward Team InvestEd

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    It's a vexed question post Richstar. There's a saying that "hard cases make bad law". I think Richstar is an example of that playing out. The court had to bend about six hundred years of trust law to nail Carey.

    A couple of points to bear in mind:

    1) the decision related to some specific corporations act provisions i.e. freezing order under s1323 (but admittedly has broader implications)
    2) even if we accept Richstar is right (I'm not convinced the decision was correct in law - morality aside. :rolleyes: ) then there's no simple answer that is without risk.

    Some advisers suggest appointing an independent appointer (generally in the context where there are two or more appointers) and requiring unanimous decisions to hire and fire the trustee. That is, however, difficult to do in practice as any adviser for example will not be truly indpendent in my view.

    One trick suggested (more in the family law context) is for say the husband's parents to be the appointer...but in the Richstar context they'd probably be considered to typically act on the husband's direction etc...

    I'd like to give some more joy but as yet there's no clear solution.

    Cheers
    N
     
  9. NickM

    NickM Co-founder Staff Member

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    Over the past few years i have recommended where possible for there to be 2 appointors. eg Husband and wife. I have also seen situations where a company may be established as the appointor. In these instances the low risk person is the shareholder of the company. Not a common situation.
    NickM
     
  10. orlando

    orlando New Member

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    Hi everyone,

    Great forum and very educational.

    I'm currently looking to create a discretionary trust (already have a unit trust for property). I was wondering if there is a maximum number of appointers that a trust can have? Also is it a majority rule to dismiss a trustee? Say there was a 50%/50% split on a vote to remove a trustee what happens in this case (important for asset protection).

    Orlando.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Why would you want an arbitrary number of appointers ? I would think one (for sole investors) or two (for husband/wife investors) would be adequate.

    The only reason I could think for having some other arrangement would be if you were using this trust for an investment syndicate with multiple investors - but in that case I would suggest a discretionary trust is not the right vehicle (unit trust or company much better I'd think) ???
     
  12. orlando

    orlando New Member

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    Thanks for your reply, I will explain my thinking.

    My partner and I are both directors of an engineering company. In the event that one or both of us are sued by someone wanting "their pound of flesh" I would like to ensure that our hard earned assets are protected.

    If I we were both trustees, beneficiaries and appointers of the trust, then it would be likely that there would be no asset protection as we would actually be in control of the assets. If we were to appoint say 4 appointers, including ourselves and 2 other family members then in the event of someone "having a crack" the trustees (us) could be removed by the appointers and the assets protected.

    I don't know I may be on the wrong track here, any views ???
     
  13. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Orlando

    1) You and your partner should not be the trustees. Get a company incorporated to be your trustee. Not that it should technically make a difference but practically have natural persons as trustees makes it harder to prove assets are not yours but are merely held by you in your trustee capacity.

    2) Appointors - you can have as many as you want. (There are some limits in some states on trustee numbers from memory). There are some advisers who suggest that you should add in say your or your partner's parent or sibling as a third appointor. Generally that's to help in matrimonial disputes (pretty sneaky huh?) but I'm not convinced it ultimately helps there or in the present situation.

    3) Bear in mind my comments about the potential narrow application of Richstar.

    4) The best asset protection is get your assets into trust early! Assets acquired or placed into trustee's hands a decade ago will be hard to attack.

    There's very little that's completely bulletproof if you're a baddie, but establishing structures early on when there's not even a hint of someone "having a crack" is the best you can do.


    Cheers
    N.
     
  14. orlando

    orlando New Member

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    Cheers Nigel.

    Will read up on Richstar.

    Thanks.

    Orlando
     
  15. Swan

    Swan Member

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    Hi all,

    been reading this interesting thread. I have a discretionary trust where I am the sole appointor. It seems post Richstar, I should appoint another appointor as joint appointor and therefore was thinkin of appointing my brother as co-appointor/guardian.

    Does the appointment of an additional appointor trigger a resettlement of the trust therefore the CGT, stamp duty is payable?

    Also, if I understand correctly generally:

    1. if the appointor goes bankrupt - the trust assets may be vulnerable per Richstar.
    2. if the trustee goes bankrupt - he is merely sacked by the appointor, so trust assets are safe.
    3. if trust goes broke - neither the trustee or appointor's personal assets at risk?