Who Should be Appointer of a Trust??

[buzzlightyear]

Just in the process of a setting up a trust.

Who is usually or who do people have as the setttlor of their trust, seeing as they cannot be a beneficiary under the trust.

James

[PT_Bear]

I think the settlor is usually your accountant or solicitor. The one who sets up the trust.

The appointor should be yourself - this is the person who can hire and fire the trustees. Thus ultimatly the person who controls the trust.

I hope I haven't got my roles confused. Get whoever is setting up the trust to clearly explain the different roles to you.

[NigelW]

Just in the process of a setting up a trust.

Who is usually or who do people have as the setttlor of their trust, seeing as they cannot be a beneficiary under the trust.

James

Get a friend to do it. That way there is a legitimate argument that there is a true settlement of a sum, albeit nominal, on the trustee for your benefit by someone who cares...

IMHO it is preferrable for it not to be your acct or lawyer because they probably have no reason to really like you :o And they definitely should NOT charge you for the $10 or whatever amount is settled on the trust if they are the settlor. To do so could, arguably, invalidate the trust :eek:

Cheers
N.

[NickM]

Sorry Nigel, i tend to disagree.

Having an accountant or lawyer settle your trust will provide you with an independent party that settles your trust.
If the validity of your trust is questioned and there is the prospect of ensuing legal action there is a good chance that your advisor will stand by you in a professional capacity. A friend may not fully understand the implications or their role as a settlor.

NickM

[NigelW]

Sorry Nigel, i tend to disagree.

Having an accountant or lawyer settle your trust will provide you with an independent party that settles your trust.
If the validity of your trust is questioned and there is the prospect of ensuing legal action there is a good chance that your advisor will stand by you in a professional capacity. A friend may not fully understand the implications or their role as a settlor.

NickM

Hi Nick

Having your lawyer or accountant settle the nominal sum as the initial trust property is certainly the widespread practice. I guess the question just arises - why should your professional adviser do so? Whilst the risk is very VERY small, I think there is still a residual argument that it's not a valid settlement. You would certainly hope that a court would take a commercially realistic view if it was ever tested...otherwise there'd be approximately 95%+ of discretionary trusts out there invalidly constituted... :eek:

If the $10 somehow finds its way onto your bill from the adviser as a line item then I think there is a strong argument that the true settlor is not the accountant but instead whoever pays the adviser's bill and as this will typically be the principal that is a complete disaster! of an outcome... :(

I'd prefer to be extra cautious because the consequences are so catastrophic, but certainly if the client said they had no friends in the world to settle $10 for them then I'd do it out of sympathy!!! :D

Cheers
N.

[NickM]

Very valid points Nigel.

I suppose at the end of the day ( or should i say at the beginning of the trust) one should ensure that all is done correctly and in accordance with trust law.
Investors rely on professionals to guide them and if their professional is not up to speed then the risk is that it could all fall apart one day.

I generally ask my clients if they would like to make me a beneficiary rather than a settlor. Yet to find a taker !

Ill keep you in mind nigel when i set up my next trust as I struggle to find friends.

[Sim]

So is it NickM-no-friends rather than the usual now ? :D

[NickM]

So is it NickM-no-friends rather than the usual now ? :D

Plenty of relos - but no friends !

[NigelW]

So is it NickM-no-friends rather than the usual now ? :D

ah the irony... :p

[noddy]

If the $10 somehow finds its way onto your bill from the adviser as a line item then I think there is a strong argument that the true settlor is not the accountant but instead whoever pays the adviser's bill and as this will typically be the principal that is a complete disaster! of an outcome... :(

I'd prefer to be extra cautious because the consequences are so catastrophic, but certainly if the client said they had no friends in the world to settle $10 for them then I'd do it out of sympathy!!! :D

Cheers
N.



My understanding is that this happened on at least one occasion. The solicitors billed on a monthly retainer basis, and the monthly bills were traced back to the date the trust was formed and the bills were normally in rounded hundreds, except for that month, where it ended in $20. The settler contribution was $20. It was argued that relative to all other invoices, it is clear that the $20 was the settlor fee and as such, the trust was invalidated. Food for thought for all.......

PS...you can do as little as $1.00 as the donation...and it is best to open a bank account with that exact amount so that the trail can be seen that the donation did take place and where it went.

Noddy

[Andrew]

Someone once suggested to me that a good idea was to choose
someone who was near to the end of their life, a father or grandfather.

That way once they are gone there is nobody to say that they didn't
gift the $10.

andy

[NormH]

the settlor can't be a beneficiary so not good to use mum/dad/grand-dad etc as they can't be included then in the trust.

re using a bank-account, given that the banks charge heaps in fees and any account that is inactive for 7years or so the money is handed to the reserve bank I am not so sure that is a good idea either.

regards

Norman

[DaleGG]

Hi

For what it is worth, I like the idea of a friend of the family acting as settlor of the trust rather than a professional.

And, we also like the settled sum usually $10 to be stapled to the trust deed as it will be consumed by the bank if placed into a bank account.

Dale

[varkenjaab]

Can the settlor be a company? I have a couple dormant/never traded incorporated companies of which I am the sole director/shareholder. They are not related in any way (apart from my being the director/shareholder) with the company I intend to use as the Trustee company.

If it is possible (to use a company as a settlor), what are the advantages/disadvantages with this? I don't have many friends... :D ...that I would like to personally involve as settlors in such affairs of mine.

Many Thanks
VJ

[dtraeger2k]

Hi Dale/Nick/Nigel,

If a friend was to act as settlor, what is their involvement once the trust is settled. Do they have any responsibilities? If you fall out with that friend is there anything they can do to your trust?

-Regards

Dave

[NickM]

VJ
I wouldnt recommend the company - in fact i have never seen a company be the settlor before.
Q for Nigel as to whether it has to be a natural person

in your case i would opt for a professional if you choose not to have a friend

it would also rule out the coy from being a beneficiary in the future

Dave - the settlor cannot harm your trust after it has been set up

Regards
NIck

[NigelW]

Hi Dale/Nick/Nigel,

If a friend was to act as settlor, what is their involvement once the trust is settled. Do they have any responsibilities? If you fall out with that friend is there anything they can do to your trust?

-Regards

Dave

No further involvement. They give you say $10 and then exit stage left. No further involvement in the trust (but their name and signature will be on the trust deed for the next 80 years as a reminder of their kindness :D )

[NigelW]

VJ
I wouldnt recommend the company - in fact i have never seen a company be the settlor before.
Q for Nigel as to whether it has to be a natural person

in your case i would opt for a professional if you choose not to have a friend

it would also rule out the coy from being a beneficiary in the future

Dave - the settlor cannot harm your trust after it has been set up

Regards
NIck
It can be a company altho I've not seen that in the discretionary trust context. But for the reason mentioned by NickM I'd pick your "friendly" solicitor or accountant...

[see_change]

We have several trusts and alternate between our fathers as settlors , so we have trusts that can distribute to either side of the family.

Having seen the comments from Nigel in previous posts , with our latest fund , my father wrote a cheque for ten dollars , which we then photocopied along with the deposit slip and have these in with the trust deed.

See Change

[NormH]

We have several trusts and alternate between our fathers as settlors , so we have trusts that can distribute to either side of the family.

Having seen the comments from Nigel in previous posts , with our latest fund , my father wrote a cheque for ten dollars , which we then photocopied along with the deposit slip and have these in with the trust deed.

See Change
Not sure why you need bother about alternating between fathers as settlors unless you want to share the cost amoungst them :) as the settlor doesn't matter nor does it govern how the trust assetts are divvied up. The trust deed (in discretionary trust) will generally list several categories of benificary and these are commonly very "generic/general" such that just about anyone who has some sort or relationship with you is included. (even companies where you own only 1 share). The distribution of those assets of the DT are totally up to the whim of the trustee and they have the sole descretion to do that without any come back. (In most DT deeds that is, read yours to make sure there are no stipulations that certain categories or persons must receive benefits - if they do it can hardly be a DT :) ). That is why the appointer is so important, this is the only person who, if they don't like what the trustee is doing, can sack the trustee. That is why you should be the appointer of your own trusts as it is the appointer who ultimately owns the assets of the trust, cos they can sack a trustee, install themselves as trustee and then give or sell all assets to themselves. If they are your assets and in a trust that you are not the appointer for, I would be really worried about my future security and would be trying to ensure you become the appointer.

regards

Norman

[NormH]

We have several trusts and alternate between our fathers as settlors , so we have trusts that can distribute to either side of the family.

Having seen the comments from Nigel in previous posts , with our latest fund , my father wrote a cheque for ten dollars , which we then photocopied along with the deposit slip and have these in with the trust deed.

See Change

Ohh See Change, hi again, I am not sure about the "cheque" bit either, now Dale and a heap of others know more about this than me but my understanding is the "trust" must be clearly identifiable, what happens if your father closes the bank account or there is at some stage no monies in the account, even for a day, then it could be argued that the money has gone and the trust relationship/agreement no longer valid. Also I suspect that cheques have a "use by date" which is likely to be less than 80 years - 1 day that your trust can live for.

The advise I was given it is better to get the "money held in trust" ($10) and glue/staple it to the trust deed so that it is clearly and easily identifiable.

I am not sure I would risk the "trust being wound up early/unexpectedly" due to some quirk with a bank or laws relating to cheques.


Norman

[see_change]

Myself or my wife are the appointors of the trust, so control who is the trustee . The trustees are companies of which one of us is the sole director so our fathers are not in a position to close the account.

They are the settlors who give money to be held in trust. That money is then deposited in an account in the name of the company as trustee of the relevant trust.

See Change

[GreatPig]

In relation to legal problems with trusts, this article about trusts in NZ may be of interest.

http://www.stuff.co.nz/stuff/print/0,1478,3118192a6445,00.html

GP

[Jas]

Spann had an interesting opinion about the appointer of the trust. He said that if you are the appointer of the trust and go bankrupt, the public trustee has taken people to court.

They are supposed to be acting in your future best interests. As such they take over your financail duties (part of which is the appointer). Having got hold of hte appointership, the take over the trustee and then distbute the assets of the trust.

He suggests you use a lawyer or accountant as appoitner, and have a signed letter of resgination from them as part of you agreement.

Jas

[see_change]

Given that , every so often , we hear of solicitors or accountants being barred / found guilty of misappropriating their clients funds etc , I'll take my chances on that one Jas . I think that is a much more realistic risk , in particular at the time of a death etc.

I seem to recall shortly after one high profile Australian died , his potential benifactors were unable to trace sums of money that were meant to be in a trust fund controlled by one of his associates .....

See Change

[NormH]

Spann had an interesting opinion about the appointer of the trust. He said that if you are the appointer of the trust and go bankrupt, the public trustee has taken people to court.

They are supposed to be acting in your future best interests. As such they take over your financail duties (part of which is the appointer). Having got hold of hte appointership, the take over the trustee and then distbute the assets of the trust.

He suggests you use a lawyer or accountant as appoitner, and have a signed letter of resgination from them as part of you agreement.

Jas

Jas hi,
that is an interesting thought and I would be interested in hearing/having further discussion on this one. My thoughts are however if you were to go bankrupt then couldn't you sign over your status of "appointer" to someone else? or a company that you are the sole director?.

I don't know if this would be caught up and clawed back under the "transfer of assets" provisions. I would think not as you are only the appointer of the trust, you don't own the assets of the trust. Admittedly that power really does give you "ultimate ownership" but only by the way of who you "make the trustee" and their decisions then could be to your benefit. All of this is assuming of course that the "public trustee" in those circumstances does take on the roll of appointer. I am not even sure of that point as "appointer" is a roll/function and not an asset.

Norman

[see_change]

All the appointer does is appoint the trustee. The Trustee doesn't actually run the trust so I don' t see why it is relevant , though would be interested to here what Nick, Dale and Nigel have to say about Peter Spann's comment.


(Edit -- I meant to say the Appointor doesn't actually run the trust ... thanks for pointing out my miskate Jas...:) ... ahhhhh!!!!!! .. I'm not even going to bother correcting that one )

See Change

[austini]

Hi gang,

Certainly any comments from Dale, Nick or Nigel will be welcomed.

There is not a week goes by where there is yet some new negative comment or potential weakness being stated about trusts in various circles or media. And quite often the way these comments are phrased and or examples given seem to automatically imply that what is being said is actual reality.

However is most of this just theoretical opinions? Are there any cases to actually support these people's views?

And if trusts are supposeably so fragile and prone to attack why do many in the legal profession use them personally!

As Dale's literature points out trusts have been around since the crusades and apart from tax changes etc the asset protection seems to have survived pretty well.

Despite all the negatives I hear or read the asset protection and flexibility to arrange one's financial affairs is highly likely to always be superior to holding assets in your own name.

Cheers - Gordon

[Jas]

All the appointer does is appoint the trustee. The Trustee doesn't actually run the trust so I don' t see why it is relevant ...

See Change

Um SC,

The trustee does run the trust.

Jas

[Jas]

Norman,

There's not really a lot more I can add to the discussion. Spann mentioned that the public trustee had recently won a court battle and done just that.

Spann implied that you can resign from the 'appionter' postition - his suggestion that you have a letter of resignation from your accountant says they can resign from the postition.

He did make a few comments about trusts that I disgree with, so I too would like to see one of the SS accountants to comment on this.

I haven't seen NickM posting much recently, is he still around?

Jas

[NormH]

Norman,

There's not really a lot more I can add to the discussion. Spann mentioned that the public trustee had recently won a court battle and done just that.

Spann implied that you can resign from the 'appionter' postition - his suggestion that you have a letter of resignation from your accountant says they can resign from the postition.

He did make a few comments about trusts that I disgree with, so I too would like to see one of the SS accountants to comment on this.

I haven't seen NickM posting much recently, is he still around?

Jas

Jaz hi,
sorry I guess I was aiming the Q generally at others and as you have said NickM or DaleGG maybe as I still only see the appointer as a function and not an asset per se so don't understand how anyone could, also with that belief then I don't see any claw back rules affecting any decision the appointer may make to transfer that status.

Anyway thanks for a bit more of a background, I'll see if I can find the decision spann is talking about on austlii website.

Norman

[see_change]

Um SC,

The trustee does run the trust.

Jas

oops, meant to say the appointer doesn't run the trust... tired ... eyes closing ... zzzz.

See Change

[NigelW]

Spann had an interesting opinion about the appointer of the trust. He said that if you are the appointer of the trust and go bankrupt, the public trustee has taken people to court.

They are supposed to be acting in your future best interests. As such they take over your financail duties (part of which is the appointer). Having got hold of hte appointership, the take over the trustee and then distbute the assets of the trust.

He suggests you use a lawyer or accountant as appoitner, and have a signed letter of resgination from them as part of you agreement.

Jas

Hi Jas

With the greatest respect to Peter, the case law (as far as I'm aware) says that the right of appointment under a trust is NOT part of the bankrupt's estate. Thus it is not available to vest in the bankruptcy trustee. So you can't lose control of your trust to the bankruptcy trustee.

Perhaps Peter could elaborate on the case he's been told about? ;)

I'll do some digging too.

Cheers
N.

[Mry]

I always recommend a close personal friend to be the appointor. Not you, not your spouse and certainly not your professional advisor. Someone you can really trust. It really is the most powerful position in a trust.

In a family situation, the appointor is usually left to one of the spouses. But if you go to family court in the event of a divorce and one of the parties is an appointor, the judge can instruct the appointor in how to operate and forbid trustee changes until after the asset reallocation. If the appointor is a close personal friend of yours, they can simply change the trustee to someone else and those instructions from the family court will have no binding effect.

I also don't recommend that a professional become the settlor as it could be questioned whether it was a proper trust establishment or just a commercial arrangement but most families don't know what a settlor is so it usually ends up being them just out of pragmatism and/or laziness.

[NigelW]

I always recommend a close personal friend to be the appointor. Not you, not your spouse and certainly not your professional advisor. Someone you can really trust. It really is the most powerful position in a trust.

In a family situation, the appointor is usually left to one of the spouses. But if you go to family court in the event of a divorce and one of the parties is an appointor, the judge can instruct the appointor in how to operate and forbid trustee changes until after the asset reallocation. If the appointor is a close personal friend of yours, they can simply change the trustee to someone else and those instructions from the family court will have no binding effect.

I also don't recommend that a professional become the settlor as it could be questioned whether it was a proper trust establishment or just a commercial arrangement but most families don't know what a settlor is so it usually ends up being just out of pragmatism.

Hi Myr

With respect, I don't agree that having a friend as appointer is any better as an option. You're correct that Family Court will look at control of financial resources in determining the carve up of assets. However, in my view there's at least as much chance of a falling out with your close friend as with your spouse (surely your spouse should be your best friend too - but I digress). As you rightly point out, it's the most powerful seat at the table, so why would you give it up??? :eek: Particularly where it's not property which can be snaffled by your Bankruptcy trustee :cool:

Also, the Family court has the power to make orders which impact third parties to the marriage (no ribald jests please GeoffW :D ). That could include trusts despite the change of trustee. One suggestion I've seen similar to your proposal is that the "financially savvy" spouse have his or her parents as the appointers but I'm not convinced that a Family Court would not regard the trust as under the defacto control of the spouse in that scenario in any event. It also becomes a practical problem if parents become too old/infirm/incapable or die (as they're certain to do over the 80 year lifespan of the trust).

I agree with you on settlor not being the accountant or lawyer if it can at all be helped.

Control is the key in all asset structures. You've just got to live with the notion that your ex-spouse will get what they get unless you go with a binding financial agreement under Family Law Act (or hide your assets and perjure yourself in Family Ct - not an option obviously :eek: ).

Cheers
N.