This conclusion about the extent of an appointor's powers however does not mean that where an appointor or principal is declared bankrupt, their power of appointment is considered 'property' which vests in and can be exercised by the trustee in bankruptcy.
Historically, there has been some confusion around this issue, given that the property of a bankrupt under the Bankruptcy Act 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…".
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 (see Re Burton; ex parte Wily v Burton (1994) 126 ALR 557).
In that case, the argument of the trustee in bankruptcy centred on the fact that Mr Burton was the appointor and a discretionary beneficiary of a family trust. He could in theory therefore appoint himself (or an entity that he controlled) as trustee.
In rejecting the argument, it was held that the powers of an appointor are fiduciary powers that must be exercised accordingly, in the interest of the beneficiaries.
In other words, the powers of an appointor must be exercised solely in furtherance of the purpose for which they were conferred.
This means that the powers of an appointor do not amount to 'property' that passes to a trustee in bankruptcy.
The powers are also not something that can be exercised by the bankrupt for their own benefit.
By analogy, the power to remove an appointor is also considered to be a fiduciary power (see Ash v Ash [2016] VSC 577).
This means that equitable relief may be imposed upon a third party who knowingly receives some benefit from the fiduciary's wrongful conduct or is knowingly involved in that wrongful conduct (see Barnes v Addy (1874) LR 9 Ch App 244).
An attorney may be able to exercise the powers of an appointor, if this is anticipated by the trust deed or attorney document (and indeed, ideally, both documents in a complementary and considered manner).
An attorney may also be able to exercise an appointor's powers where there is informed consent. Such consent must however involve more than inference from an alleged plan of the principal, particularly where that plan is vaguely defined and based on inference itself. That is, there must be clear evidence of the salient details of the transactions affecting the principal's interests being provided to them before their incapacity (again see Ash v Ash [2016] VSC 577).
Like last week, the above post is again based on an article that we originally contributed to the Weekly Tax Bulletin.
As usual, please make contact 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 Spandau Ballet song ‘Cut a long story short’.
View here:
