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19 December, 2014 | Peter Smith
Most people with a discretionary family trusts realise that a trustee’s role is to make decisions regarding the trust and generally to carry out the administration of the trust. This includes an “unfettered discretion” (trustees do not have to disclose reasons for their decisions) as to the distribution of trust fund to beneficiaries. Having the appropriate trustees in control of the trust (and the trust assets) is integral to the success of the trust.
The settlor (generally the person(s) who set up the trust) will appoint the initial trustees when they set up the trust. Most commonly the settlor will appoint themselves (husband & wife) as trustees along with an independent trustee (a non-beneficiary) or a corporate trustee.
The power of appointment and removal of trustees is usually held by the settlor or appointor of the trust and gives that person(s) the right to hire and fire trustees. It is important to check your trust deed to see who holds the power of appointment and removal of trustees, and any limits that it may set out. (Learn more about how to remove a trustee)
The Power of Appointment is included in Trust Deeds to ensure that there are always sufficient trustees available to administer the property of the Trust in accordance with the terms of the Trust Deed.
A power of appointment can be used:
If the person holding the power of appointment dies without determining the power of appointment, the Trustee Act 1956 sets out that executor/trustee of the settlor’s Will is automatically vested with the power of appointment. It is essential that consideration be given as to who is to have the power of appointment on the death of a settlor. It is common to include a clause in your Will stating who the power of appointment will vest in on your death.