Tuesday, November 12, 2019

Automatic** disqualification clauses for trustees and appointors


With thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation is below -

Question: How do ‘automatic disqualification’ clauses work and are they effective from a family law perspective?

Answer: This is an interesting question.

Many of the trusts that we (and other law firms) establish contain a provision in them that we call an ‘automatic disqualification’ provision.

The provision is drafted to ensure that anybody in a key role, such as an appointor or trustee, will get automatically removed from that role upon certain events happening to them.

The most common disqualification scenario is death or incapacity.

If you’ve got a trustee who becomes incapacitated or dies, then obviously they need to be removed and someone else needs to step into that role to manage the trust.

However, those triggering events can also include a family law breakdown. We can have a clause in our trust deed or our will saying that if the appointor or the trustee separates from their spouse, then they are automatically disqualified from that role and somebody else steps in in their place.

I’m not aware of any instances where the effectiveness of that type of clause has been tested before a Court, but I think it has reasonable grounds of being successful if it is tested.

As a general rule we include this type of provision in all of our documents on the basis it gives our client a fighting chance of retaining the trust if anything goes wrong for them personally, since they didn’t actually make that change to the control of the structure themselves.

** For the trainspotters, ‘Automatic’ is a song by The Pointer Sisters from 1983.