Discretionary Trusts, also commonly referred to as Family Trusts are often used to hold a family’s assets or to conduct family business affairs. By correctly structing a Discretionary Trust, a number of unnecessary complications and additional costs can be avoided.
When establishing a Discretionary Trust, there are several key considerations which the parties to the Trust must be aware of, including:
- Name of the Trust
- Choice of Trustee
- Beneficiaries
- Choice of Appointor
- Choice of Settlor
The final two (2) dot points are commonly misunderstood and not explained to clients effectively by practitioners setting up the Trust.
The Appointor is one of the most important roles within the structure of a Discretionary Trust. The Appointor is afforded the power to remove or change the Trustee which means that this role must be allocated to someone who can be trusted with such responsibility and can always act on the best interests of the Trustee and Trust. An Appointor is usually a trusted individual who will have a basic understanding of the Trust and its effects and can be relied upon to act appropriately.
A 2016 Supreme Court case illustrated the importance of an Appointor’s role and determined it to be “part of the substratum of the trust and that it cannot be changed by the Trustee.” The only way an Appointor can be changed is by formally renouncing which highlights the need to ensure that the Appointor is carefully considered.
The Settlor also plays a key role in a Discretionary Trust. The Settlor (or the Creator) is the person who causes the trust relationship to come into being. The Settlor should be someone who does not have a primary involvement in the trust itself, with their sole role to establish the trust. The role of the Settlor is commonly held by the accountant or lawyer who assist in setting up the Trust.
The creation of a Discretionary Trust is not a matter to be taken lightly, if you or your family are looking into establishing a Discretionary Trust, then the team at Baker Love Lawyers can assist you in doing so. Please contact us on (02) 4944 3322.
