Appointors (or sisters) doing it for themselves **

Last week's post considered the ability of a trustee in bankruptcy to exercise the powers of an appointor or principal of a family trust who is bankrupt as their personal property.

A related issue that has been the subject of many years of debate is whether the holder of an appointor role can exercise it so as to appoint themselves.

For many years, the case of Re Skeats' Settlement (1889) 42 Ch D 522 has been seen as the leading decision, and it confirmed that an appointor could not appoint themselves as trustee. In particular the case held that '...the universal rule is that a man should not be judge in his own case; that he should not decide that he is the best possible person, and say that he ought to be the trustee'.

This blanket prohibition has however been iterated over the years and, subject always to the provisions of the relevant trust deed, the position now appears to be that the trustee appointment power is a species of special ‘fiduciary power’ that must be exercised for the benefit of objects of the trust.

This means that an appointor may appoint themselves (or a company they control) as trustee of a trust, as long as it is not for fraudulent purposes and permitted under the deed.

An appointor choosing to appoint themselves as trustee will however only by permitted in ‘exceptional circumstances’, where the court is assured that the trusts will be executed in the interests of the beneficiaries.

The decision in Australian Conservation Services v Liladel Holdings [2017] ACTSC 162, provides a concise summary of the rules in this area.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, 'Sisters are doin' it for themselves' is a song from 1985 by the band the Eurythmics, listen hear (sic) -

Trustees in bankruptcy making plans for appointors (or Nigel) **

Last week's post considered the ability of an attorney to exercise the powers of the donor as an appointor or principal of a family trust.

A key related question is whether a trustee in bankruptcy can act on behalf of a bankrupt for any principal or appointor role held by a bankrupt under a family trust.

As with incapacity (as mentioned last week), generally a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through the committing an ‘act of bankruptcy’, then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

The property of a bankrupt which is available for distribution to creditors includes ‘the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit…’ (see section 116(1)(b) of the Bankruptcy Act).

However, it has been held that the right of a bankrupt to exercise a power of appointment under a discretionary trust is not property of the bankrupt (Re Burton; ex parte Wily v Burton (1994) 126 ALR 557 and Lewis v Condon; Condon v Lewis [2013] NSWCA 204).

Further, the decision in Dwyer v Ross (1992) 34 FCR 463 suggests that a trustee in bankruptcy cannot compel the trustee of a trust to exercise the trustee’s discretion in favour of a bankrupt beneficiary. To do so could be construed as a breach of the trustee’s duty to the solvent beneficiaries of the trust. It would be against the interests of the beneficiaries as a whole to exercise the power in that way.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, ‘Making Plans for Nigel’ is another song by the band XTC, from 1979, listen hear (sic) –

Generals and majors (or attorneys and appointors, as the case may be) **

Previous posts have considered the broad limitations to an attorney's powers.

A key related question is whether an attorney can act on behalf of a donor for any principal or appointor role held by a donor under a family trust.

Generally, a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through age, accident, or illness (evidence of which is by certificate of a registered medical practitioner), then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

Where the trust instrument does not address the question, the preferred position appears to be that the principal powers can be exercised by an attorney.

The leading case in this regard is generally seen to be Belfield v Belfield [2012] NSWCA 416 where it was held that an attorney could have exercised the principal’s power under the Deed while the principal was incapacitated. In other words, even in the absence of any express provisions in the trust deed addressing the incapacity of a principal, the principal's powers can be exercised by a validly appointed attorney on their behalf.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, ‘Generals and Majors’ is a song from 1980 by the band XTC, listen hear (sic) –

Parents joined to a child’s family law dispute (for no reason?**)

Anecdotally, there appears to be an increasing number of situations where the parents of a spouse are forcibly required to provide disclosure of their personal arrangements as part of their child’s property settlement proceedings.

Arguably, the highest profile case in this regard was MacDowell and Williams [2012] FamCA 479.

In this case, the parents of a woman going through a property settlement allegedly had access to wealth in excess of $20 million.

Following a marriage of around 7 years, the husband as part of the matrimonial litigation tried to get access to the wills of his former in-laws and the deed for a trust, which he believed his wife was a primary beneficiary of.

Acknowledging that each situation would depend largely on the facts, the court in this case decided:

1. While the husband could get a copy of the trust deed, the court flagged it was unlikely that the trust would be taken into account in any form under the property settlement (i.e. it would be treated neither as an asset or a financial resource), given that the wife was only one of many potential beneficiaries and had received less than $30,000 of distributions from the trust during the entire marriage;
2. The wills did not need to be disclosed on the basis that the parents had full testamentary capacity and may change their wills, or indeed, may otherwise spend or dispose of a substantial part of their wealth; and
3. The privacy of the parents’ personal affairs was seen as an important factor in denying access to the wills and estate planning documents.

Interestingly, the court did however note that if the wife’s parents had lost capacity or they were in extremely poor health, then it may have created a situation where the wills would be required to be disclosed.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Church song 'It’s no reason'.

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