Deed of appointment and retirement of trustee of discretionary trust

Deed of appointment and retirement of trustee of discretionary trust

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This document is a template deed of appointment and retirement of trustee of discretionary trust.

A change of the trustee of a discretionary trust must be made in writing, between the appointor, the old trustee and the new trustee.

This precedent is a guide only and should not be adopted for use without consideration being given to the relevant circumstances and the provisions of the particular clauses of the trust deed.

This template deed of appointment must be adapted for the particular circumstances if there is no separate appointor and the power of appointment resides in the retiring trustee. This template is modelled on a fact situation involving a company trustee both as the retiring trustee and as the new trustee and a natural person having the power to appoint a new trustee, the retiring trustee being the trustee appointed under the original deed.

Retiring trustee

Regarding the duties of a person entitled to exercise a power of appointment, see Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 17 ACSR 239 at 262; BC9504568.

By statute, a retiring trustee may appoint a new trustee and it is desirable that a retiring trustee should join in the appointment in case there is some defect in the appointment of the new trustee by the "Appointor". See:

·            New South Wales: Trustee Act 1925 section 6(11);

·            Australian Capital Territory: Trustee Act 1925 section 11(4);

·            Queensland: Trusts Act 1973 section 12(7);

·            South Australia: Trustee Act 1936 section 14(4);

·            Tasmania: Trustee Act 1898 section 13(4);

·            Victoria: Trustee Act 1958 section 41(8); and

·            Western Australia: Trustees Act 1962 section 7(7).

Indemnity

While the outgoing trustee has possession of the trust property it may have a lien to secure its indemnity. Once it transfers the trust property that lien will be lost. If it has incurred liabilities on behalf of the trust and wishes to secure its indemnity it should consider what is necessary to protect its position under applicable laws including the Personal Property Securities Act 2009 (Cth).

Appointment of new trustee

Trust deeds normally prohibit trustees being a beneficiary, even in another capacity. Apart from the deed requirements there are very serious stamp duty and capital gains tax issues of having the trustee as a beneficiary (even in a different capacity). If there is complete identity between the Trustee and beneficiary/sole unit holder, the trust may cease to exist as there is may be no separation of legal and beneficial ownership.

In relation to the requirement for the deed of appointment to be in writing, see:

·            New South Wales and Australian Capital Territory: section 6 of the Trustee Act 1925;

·            Victoria: Trustee Act 1958 section 41;

·            Queensland: Trusts Act 1973 section 12;

·            South Australia: Trustee Act 1936 section 14;

·            Western Australia: Trustees Act 1962 section 7;

·            Tasmania: Trustee Act 1898 section 13; and

·            Northern Territory: Trustee Act 1893 section 11.

The exercise of the statutory power of appointment in New South Wales and the Australian Capital Territory only must be by registered deed: see section 6(1) of the Trustee Act 1925 (New South Wales) and (Australian Capital Territory).

In states and territories having the equivalent to section 6(10) and (13) of the Trustee Act 1925 (New South Wales), an appointment of a new trustee under the terms of an express power to that end in the trust instrument will be effective even though the appointment has been effected by an unregistered deed. Regardless this provision, in New South Wales and the Australian Capital Territory, third parties, such as lenders, who are required to rely on the instrument of appointment of the new trustee, often insist on the appointment being effected by a registered deed under the statutory power to achieve two objects:

·            to remedy any deficiency in the power of appointment in the trust deed; and

·            as evidence of the vesting of trust assets in the new trustee by relying on section 9(1) of Trustee Act 1925 (New South Wales), which provides:

"Where a new trustee is appointed, the execution and registration of the deed of appointment shall without any conveyance, except as otherwise provided in this section, vest in the persons who become and are the trustees for performing the trust, as joint tenants and for the purposes of the trust, the trust property for which the new trustee is appointed".

In most cases the execution and registration of a deed in the suggested form will not transfer the legal title to the new trustee. For land, the applicable land titles office will also require a special form to be completed and lodged with the title. Appropriate forms of transfer expressed to be pursuant to the deed are also needed for other property such as shares and bank accounts. For shares in a company, the requirements of the constitution of the company will need to be satisfied to register a transfer. For choses in action, the outgoing trustee should also give notice of the transfer to the new trustee to the debtor or other party.

Title to the property of the trust

It is important to have regard to the statutory requirements in the various states with regard to the stamping of a transfer of property of the trust to a new trustee arising from a deed of appointment of a new trustee.

In New South Wales, see section 54 of the Duties Act 1997 (formerly section 73(2A) of the Stamp Duties Act 1920) and stamp duty ruling DUT 37. In New South Wales, failure to comply with DUT 37 could result in ad valorem duty being imposed on the value of the trust assets transferred by the retiring trustee to the new trustee. Stamping and registration may require proof that the outgoing trustee held the property in its capacity as trustee of the particular trust.

For a template trust deed, see the precedent “Trust deed”.

This document has been authored for Lexis Nexis by Selwyn L Black Peter D Carroll, Carroll & O’Dea and updated by Jane Garber-Rosenzweig, Gable Lawyers.

This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.