June 2010

Family Trusts

Power of appointment of Trustees – Loss of legal capacity

The Legal Issue

When a Discretionary Family Trust is created a person or persons are nominated to be the Appointors of Trustees of that Trust. In other words, the Appointor has the continuing power to “hire and fire” Trustees of the Trust without the Appointor needing to give any reasons. This power of appointment is essential as a Trustee or Trustees may die or for numerous good reasons be unable to continue in the role. To keep the Trust operating a new Trustee or new Trustees need to be appointed.

Usually, the Appointor will specify in their Will who will take over this power of appointment when the Appointor dies. This approach ensures continuity for the Trust.

The Problem

As we have often commented, with regards to Enduring Powers of Attorney, losing legal capacity (i.e. mental capacity) can often happen and is now more frequently occurring in our senior years. This can be from dementia, Alzheimers and many other serious ailments.

If the Appointor of Trustees loses legal capacity there has been no effective back-up plan. The Appointor’s Will can not help, as the person is still alive. Enduring Powers of Attorney do not help as most Trust Deeds only permit a change of Appointor by Deed of Nomination (which the Enduring Power of Attorney is not).

The only option available has been to make application to the High Court under the Trustee Act. This can be very expensive.

The Solution

As a result of the above problem having been identified, we have created a specific Deed of Nomination of Appointor on Loss of Capacity to resolve the issue by specifically referencing mental incapacity and requiring medical certification of such incapacity before the Deed of Nomination becomes effective. We have even gone further in providing that if the Appointor later gains mental capacity (i.e. legal capacity) then the Appointor can revoke the Deed of Nomination. With our Deed the result is that whether the Appointor has capacity or not, the Trust can effectively continue.

What to do

If you are the Settlor of a Family Trust and/ or an Appointor of a Family Trust - THEN it is prudent for you to have such a Deed of Nomination.

Make an appointment to see us as soon as possible. It is one further step in ensuring that the Family Trust will be effective for the longer term.