01 Nov Planning for incapacity: who controls the family trust?
First published in Lexology: November 19, 2015
If you control a family trust, it’s not enough to have a Will. You also need a more comprehensive estate plan that determines who replaces you as controller of your family trust in the event that you lose capacity.
Each week there are more than 1,800 new cases of dementia diagnosed in Australia. Given these statistics, it is impossible to overstate the importance of planning for incapacity, not just death.
Who controls a family trust?
“Appointor” is the term used in many discretionary family trust deeds to describe the person who has the power to appoint and remove the trustee. The appointor is also commonly referred to as guardian, protector or principal. The person who holds this power will ultimately control the trust.
Whilst the position of appointor is commonly associated with the power to remove and replace the trustee, the trust deed can give the appointor other powers. For example, an appointor or guardian may have “reserve powers” which require the trustee to obtain the consent of the appointor or guardian before exercising certain express powers, say, adding beneficiaries or distributing income or capital to certain specified beneficiaries.
For these reasons, it is essential in any estate plan to determine, by review of the trust deed, who holds what position and what powers that position confers.
Does the controller have an Enduring Power of Attorney?
Case law says that an attorney appointed under a prescribed Enduring Power of Attorney form without any express power has authority to act in the principal’s place as appointor. If you have an Enduring Power of Attorney it is important to consider if the attorney is also a beneficiary of the trust and, therefore, if it is appropriate that the attorney acts in your place as appointor should you lose capacity.
If the proper planning is not done and the controller of a family trust becomes incapacitated then the result is often that a trust becomes dysfunctional or worse family relationships are damaged beyond repair and the family’s wealth reduced. If you are the appointor of a discretionary family trust then it is important to plan for what will happen to the trust if you lose capacity.
If you have any issues regarding Family Trusts or Powers of Attorney contact Roy Hasda at firstname.lastname@example.org or 8212 1322