What Happens to a Family Trust When the Appointor Dies?

What Is an Appointor?

The appointor is a person (or persons) named in a trust deed as the holder of defined powers. The label varies — some deeds use "principal", "guardian" or "protector" — and the powers those labels describe also vary from deed to deed rather than being interchangeable. In many family trust deeds the appointor's powers include a power to remove and appoint the trustee, but the scope of the power (and any conditions, consents or formal requirements on its exercise) is deed-specific.

The appointor typically has no direct role in running the trust day to day. They do not sign trust contracts, make investment decisions or resolve to distribute income. A power to remove and appoint the trustee can be influential over who acts as trustee, but it does not confer ownership of trust assets or a general right to direct the trustee's exercise of trustee powers, which the trustee must exercise consistently with the deed and law.

In many family trusts the appointor named at establishment was the founder of the trust; some deeds named a second appointor (often a spouse) jointly or in succession. Some modern deeds separate an appointor role (with power to change the trustee) from a guardian role (whose consent is required for defined fundamental decisions such as varying the deed, vesting the trust early or adding or removing beneficiaries). Whether those roles are concentrated in one person or split across several is a drafting choice.

Trustee, Appointor, Guardian and Beneficiary — What's the Difference?

These four roles are often confused. They are distinct, and the distinctions matter.

• Trustee. The legal owner of the trust assets. Subject to the deed and law, the trustee makes decisions about entering contracts, employing staff, operating bank accounts, lodging tax returns and exercising the trust's discretions in accordance with the deed and applicable duties. In many family trusts the trustee is a private company, with the directors of that company making the trustee's decisions.
• Appointor. A person or persons named in the deed with defined powers. In many deeds those powers include the power to remove and appoint the trustee, though the terms of the power (and any conditions or consents required) vary from deed to deed. The appointor's powers do not typically extend to directing the trustee's exercise of trustee powers, which the trustee must exercise consistently with the deed and law.
• Guardian. Where the deed creates this role, the guardian's consent is generally required for specified decisions — often varying the deed, vesting the trust early, adding or removing beneficiaries, or changing trustee. Its scope depends on the deed.
• Beneficiary. A person or entity in whose favour the trustee may exercise the trust's discretions. Beneficiaries in a discretionary trust have no fixed entitlement — they have a right to be considered, and a right to have the trustee act in good faith and within the terms of the deed.

A single individual can hold more than one role. In small family trusts the same person is often the sole director of the corporate trustee, the appointor, the guardian and a beneficiary. That concentration of roles is convenient during the founder's lifetime but creates a succession issue when the founder dies — different offices and interests may cease, devolve, continue or require appointment under their own instruments and applicable law, and each needs to be considered separately.

Why the Appointor Role Is Often Significant

The trustee acts in accordance with the deed and law. Where a deed confers on an appointor a power to remove and appoint the trustee, that power can be influential over who acts as trustee, though the scope and character of the power (and any consents or conditions attached to it) depend on the deed. The appointor does not typically direct the trustee's exercise of trustee powers.

For families whose principal asset is a family business or long-held investment held in or controlled by a family trust, succession of the appointor role is commonly a significant estate-planning question. For further context see our article on business succession planning.

Common Family Trust Structures

Australian families use a range of trust structures, including:

• Discretionary trusts. A common family trust. The trustee has discretion to distribute income and capital among a defined class of beneficiaries. The deed typically nominates one or more appointors with power to replace the trustee. Used for investment portfolios, family businesses, intergenerational wealth and asset protection.
• Unit trusts. Beneficiaries hold fixed units that determine their entitlement to income and capital. Trustees have much narrower discretion than in a discretionary trust. Appointor-style roles exist in some unit-trust deeds but tend to be less common.
• Family business trusts. Some family businesses are operated through a discretionary trust (sometimes with a unit trust or company in the structure). Where the deed confers a power to remove and appoint the trustee, that power can be influential over control of the business, subject to the terms of the deed.
• Testamentary trusts. Trusts created under a will, taking effect on the testator's death. These have their own succession provisions and are addressed in our article on testamentary trusts explained and on the taxation of testamentary trusts.

Trust Deeds and Succession Provisions

The starting point for questions about who controls a family trust after the appointor's death is the deed, read with applicable trust law. Some deeds contain succession provisions that address each scenario; others do not. Provisions vary considerably. The following are illustrative only of drafting patterns that can appear:

• a power for the appointor to nominate a successor by deed or by will (with any formal requirements set out in the deed);
• a named successor or class if no nomination has been made (for example, a specified individual or a defined class of beneficiaries);
• a provision that the role passes to the appointor's legal personal representative in defined circumstances; and
• a fallback mechanism (such as an appointment by a defined class of beneficiaries) where the deed's machinery is otherwise exhausted.

Older deeds are often less complete. Some deeds simply name the founder as appointor and stop. Some provide that the role passes to the appointor's legal personal representative, without further machinery. Whether such a clause operates as intended depends on construction of the deed, on whether a grant of representation is in place (probate for an executor of a valid will, letters of administration where the estate is administered intestate), and on whether the personal representative's duties to the estate can be reconciled with the role's function under the trust. These are fact- and deed-specific questions on which advice should be obtained rather than answered by any general rule.

How the Appointor Role Can Pass on Death

The way the appointor role passes on death depends on the deed and applicable law. Broadly, the following possibilities can arise.

1. Automatically under the deed. The deed names a successor — for example, "on the death of the first appointor, the second appointor shall be the appointor". Where a valid clause of this kind applies, the role passes in accordance with the clause. What documents or authority (such as a death certificate or, where relevant, a grant of representation) are needed to give effect to the transition depends on the deed and the circumstances.
2. To a nominated successor. The deed allows the appointor to nominate a successor by deed, by will or by another instrument. The role passes to a nominee where the nomination has been validly made in accordance with the deed and the nominee is willing and able to act. Documenting the nomination in the trust's records reduces the risk of later dispute.
3. To the legal personal representative. Some deeds provide that the role passes to the appointor's legal personal representative (which refers to the executor where the deceased left a will and the will has been proved, or the administrator where the estate is administered intestate — the two are not automatically interchangeable). What is required to give effect to the transition — including whether a grant of probate or letters of administration is needed — depends on the deed and the circumstances of the estate. See our articles on probate in Victoria and on letters of administration in Victoria.
4. Court applications. Where the deed's machinery is silent, ambiguous or has broken down, an application to the Supreme Court may be considered. The Court has statutory and inherent supervisory powers in respect of trusts and trustees, including in relation to the appointment and removal of trustees, and may also construe the deed or grant other relief in appropriate cases. Whether any particular relief is available to resolve a vacant appointor office, and what form it takes, depends on the deed, the nature of the power, the jurisdiction and the orders sought. Appointment of a trustee and appointment of an appointor are distinct questions and should not be conflated. Court proceedings can involve substantial cost and delay, and the outcome depends on the deed, evidence, jurisdiction and relief sought.

The Risk of Outdated Trust Deeds

Many Australian family trusts were established some years ago using standard forms in use at the time, which varied in the extent of their appointor and guardian succession machinery. A deed that was appropriate for a family and business when the trust was established may not reflect the current family or business, particularly where there have been material changes such as births, deaths, separations, remarriages or significant changes in the value or nature of trust assets.

Possible deficiencies in older deeds include:

• no successor appointor nominated and no fallback machinery;
• an appointor succession clause that nominates the spouse, who has since died or separated;
• a vesting date that is now uncomfortably close;
• a beneficiary class that has not been updated to reflect blended families, in-laws or great-grandchildren;
• no guardian role, leaving fundamental decisions entirely to whoever happens to hold the appointor role; and
• an inability to vary the deed without unanimous beneficiary consent, which is often impractical.

Whether variation of a deed can be effected during the appointor's lifetime — and whether a proposed variation gives rise to resettlement, duty or CGT consequences — depends on the terms of the deed, the nature of the amendment and applicable tax and duty law. Variation after death is generally more difficult and may require court applications in some circumstances.

Control of Family Businesses After the Appointor's Death

Where a family business is held in or controlled by a family trust, succession of the appointor role and of related offices and interests is commonly a significant planning question. Rather than predicting a particular outcome, the following are issues that should be checked and considered with legal (and, where relevant, tax) advice:

• the deed's provisions for succession of the appointor (and any guardian) role, including any nomination made during the appointor's lifetime;
• succession of shares in, and directorships of, any corporate trustee, and how those are dealt with in wills, in the company's constitution, in its share register and in any shareholders' agreement;
• the trustee's continuing duties to beneficiaries and the deed, and any conflicts of interest or duty that may arise for individuals who hold multiple offices (for example, executor and director);
• governance of the business itself — including any shareholders' or operating agreements, key-person arrangements and management continuity; and
• obtaining separate legal advice for beneficiaries whose interests may differ from those of the person taking control.

Our article on what happens when a business owner dies in Victoria covers the operating-company side; the trust deed and appointor succession are separate considerations. See also our article on what happens to a company when a director or shareholder dies.

Asset Protection Considerations

The asset-protection features that a family trust structure may offer depend on separation between the trust and any individual at risk, on how the trust is administered in fact, and on the applicable law in the relevant context (for example, personal insolvency, family law property proceedings, or claims by creditors of a beneficiary or trustee). Outcomes in those contexts are fact- and law-specific and cannot be predicted in the abstract. On the appointor's death, the identity and circumstances of the person or entity taking the appointor role may be relevant to how a court views the trust; specialist advice should be obtained. The following are examples of matters that may warrant review, not statements of automatic consequences:

• whether it is appropriate to consider using an independent professional or a corporate appointor (subject to the deed and to specific advice);
• the position where the role may pass to a beneficiary who is in financial difficulty, in litigation or a party to family law property proceedings — courts in those contexts can examine how control of a trust is exercised in fact when deciding what is available to satisfy claims; and
• circumstances in which one person may hold multiple roles (director of the corporate trustee, appointor, principal beneficiary) — such concentration can affect how a trust is treated, depending on the context and applicable law.

Whether any particular succession arrangement improves or diminishes the trust's asset-protection profile is a question for specialist legal advice on the facts.

Taxation and Duty Considerations at a High Level

An appointor's death does not, of itself, transfer the trust's assets. However, the death of an appointor, succession of the appointor role, changes of trustee, changes to directors or shareholders of a corporate trustee, distributions made during a year of income and any variation of the deed may each have income-tax, capital-gains-tax, duty, trust-election and administration consequences. Whether and how those consequences arise depends on the terms of the deed, how any change is implemented, the jurisdiction and applicable tax and duty law. Specific tax, duty and trust-law advice should be obtained before action is taken. For an overview of how trust income is taxed, see our article on the taxation of testamentary trusts. The framework applicable to family-trust income is different in important respects.

Estate Planning Considerations

For any individual who holds the appointor role in a family trust, the trust deed should sit alongside the will and the enduring power of attorney as part of a single coordinated estate plan:

• Whether a will can make an effective appointment of the appointor role depends on construction of the deed, the nature of the power, formal requirements and applicable law. Any testamentary nomination should be prepared consistently with those requirements.
• The enduring power of attorney should be reviewed against the deed. Some deeds allow the attorney to exercise the appointor power during incapacity; many do not.
• The constitution, share register and any shareholders' agreement of the corporate trustee (if any), together with the wills and other estate documents of the deceased and other relevant shareholders and directors, should be reviewed to consider how shares and directorships are dealt with on death and whether the trustee company can continue to be effectively administered.
• Loan accounts between the deceased and the trust should be identified and dealt with in the will, in the trust's accounts and in the legal personal representative's administration of the estate.
• Memorandum of wishes (where the deed contemplates one) should be reviewed and updated.

Estate plans that focus on the will to the exclusion of the trust deed and the corporate trustee are often incomplete. See our service pages on wills and estate planning and on commercial and business law.

Reviewing the Trust Deed Before Death

A practical step for families is to review the trust deed during the appointor's lifetime with legal and tax advisers. A review typically considers:

• confirm who currently holds the appointor role;
• identify any gaps or ambiguities in the succession clauses;
• recommend any variation needed to nominate a successor or to add a guardian role;
• confirm the vesting date and recommend extension if appropriate;
• review the beneficiary definition against the current family;
• align the deed with the will, the enduring power of attorney and the corporate trustee's shareholders' agreement; and
• produce a short written summary that the family and the legal personal representative can rely on.

Common Mistakes

1. Not knowing what the deed says. The starting point of any appointor succession question is the deed. Families that have lost the deed, or that have never read it, are proceeding without the essential document.
2. Treating the trust assets as personal assets. The trustee holds legal title to trust assets and must deal with them under the deed and law. The appointor does not own those assets. Wills that purport to gift trust property are ineffective to that extent.
3. Drafting a will inconsistent with the deed. If the deed and applicable law do not permit an effective testamentary appointment of the appointor role, a will that purports to do so creates ambiguity rather than certainty.
4. No successor appointor nominated. Leaving the role to whoever the deed defaults to can produce surprising and unwelcome outcomes.
5. Joint appointors without succession rules. Naming several adult children as joint appointors without addressing what happens if one dies, loses capacity or disagrees with the others can create longer-term governance issues.
6. Ignoring the corporate trustee. If shares in, and directorships of, the corporate trustee are not properly dealt with, appointor succession may be resolved but the trustee company may still be unable to function effectively until those issues are addressed.
7. No coordination with the enduring power of attorney. An appointor who loses capacity but does not die can be just as much of a governance problem as one who dies.
8. Outdated deeds. Deeds that have not been reviewed for a long period may not reflect the current family, business or legislative context and are worth revisiting periodically.

When to Obtain Legal Advice

Obtain advice from a lawyer experienced in trusts, estate planning and (where relevant) business succession in any of the following situations:

• you are about to establish a new family trust;
• you are preparing or updating your will and you are the appointor (or potential appointor) of an existing family trust;
• you are preparing or updating an enduring power of attorney and you are an appointor of a family trust;
• your trust deed has not been reviewed for some time;
• there has been a major change in your family (marriage, separation, divorce, birth, death, remarriage, blended-family dynamics);
• there has been a major change in the trust's assets (sale or purchase of a business, sale or purchase of significant property, change of trustee or director);
• you have inherited a role in someone else's family trust as executor, trustee, appointor or guardian; or
• you suspect that the deed is missing, lost or ambiguous.

Where appointor succession is contested, see our service page on estate litigation and TFM claims and our article on executor duties in Victoria. For administration of the appointor's estate, see our service page on probate and estate administration.

General Information Only

This article is general information only and is not legal or tax advice. Trust deeds differ significantly and the succession outcome for any particular trust depends on the specific terms of that deed, the law of the relevant State or Territory, the family circumstances and the broader estate planning context. Anyone holding or inheriting an appointor role should obtain advice tailored to their circumstances from a specialist trusts and estates lawyer.

Frequently Asked Questions