Guide on Trust Funds – Part 6
The appointors (or appointor) of a trust have the real power and control of the assets of a trust, since the appointors have the power to appoint and remove trustees. In many cases, the original appointors include the one or more of the parties for whose benefit the trust is established.
If there is no appointor named in the trust deed, the trust deed may allow the trustee to exercise the powers of the appointor.
Who should be the appointor?
As the real control of a trust lies with the appointor, extreme care should be taken in choosing the appointor.
Consideration needs to be given to the following points when deciding on an appointor:
- what happens on death, divorce and bankruptcy.
- For ultimate asset protection, it is recommended to have joint appointors with at least one
independent appointor. For example, three joint appointors, being the husband, wife and an independent appointor, such as the family solicitor or accountant.
- To be effective, the appointors’ decisions must be unanimous (thus two could not act against one). This would prevent a trustee in bankruptcy, for example, removing the current trustee without the consent of the independent appointor.
- Alternatively, a company could be made the appointor (although succession issues in relation the directors and shareholders of that company must then be considered, amongst other matters).
The trust fund
The trust fund is all the property of the trust including the settled sum, income accumulated and any other money and property held by the trustee pursuant to the terms of the trust.
The beneficiaries are the people (including other entities, such as companies) for whose benefit the trustee holds the property. As mentioned previously, a person to whom the trustee can distribute income or corpus (capital) is a potential beneficiary. A potential beneficiary becomes a beneficiary on the distribution of (i.e., on the exercise of the trustee’s discretion to distribute) the income or capital of the trust.
There are different types of beneficiaries, including:
- Primary beneficiaries, who will usually be entitled to undistributed capital and income on winding up of the trust and, in most discretionary trusts, will include the immediate family of those for whom the trust is being set up; and
- General beneficiaries, who usually include the primary beneficiaries as well as other people set out in the trust deed (including related companies and trusts).
Care should be taken when a major restructure of the beneficiaries is proposed. The risk is that such a change could mean the trust becomes a whole new trust – triggering capital gains tax (CGT) and/or stamp duty consequences.