Many families use the instrument of a Testamentary Trust in their Will to protect their assets and the rights of their beneficiaries. When using this form of estate planning it is important to understand the key players and each pTestamentary Trusterson’s responsibilities. There are four participants in a Testamentary Trust.
- The Settlor
- The Trustee
- The Beneficiaries
- The Appointer
While the first three are the most commonly known and understood, it is the fourth delegate, the Appointer, who often has the most important and difficult job.
The Settlor is the party who creates the Trust and is donating the funds that will eventually be distributed to the beneficiaries. Therefore, the Settlor is the owner of the assets. It is the Settlor who will determine the assets that will comprise the trust, who the assets will be distributed to and the purposes for which the assets will be set aside.
The Trustee is the party who will distribute the assets in accordance with the instructions in the Trust.
The Beneficiaries are the person or persons designated to receive the benefits from the Trust. These benefits can be received in many forms including education, health and welfare and general living expenses.
The Appointer is the individual responsible for making sure the Trustee acts in accordance with the Trust and in the best interests of the beneficiaries. This position inherently creates a fiduciary duty to the beneficiaries and a responsibility for being fully informed about the distribution of the assets.
The responsibilities of an Appointer
The responsibilities of an Appointer can include:
- The power to remove and appoint a new Trustee
- The final decision-making authority regarding the control and administration of the Trust
- The ultimate overseer of the best financial interests of the beneficiaries
- The responsibility to engage other professionals in the best interest of the Trust
The risk factors of being an Appointer:
However, being an Appointer comes with some risk factors. As such, before agreeing to perform in this capacity it is important to understand the risks you might be exposed to, including;
- Personal liability for not meeting the legal obligations assigned to an Appointer
- Failing to be fully informed of the financial transactions of the Trustee
- Not adequately protecting the rights of the beneficiaries
- Inappropriately allowing or vetoing an action by the Trustee
- Failure to recognize and remove a Trustee who is not performing in accordance with the Trust instructions
In the event that an Appointer fails at any of these important duties and legal obligations, the Trustee or the beneficiaries can take legal action against the Appointer.
Protections an Appointer Should Take
While there are risk factors associated with accepting and performing the position of Appointer, it is possible to take precautions against being personally liable for inadequately exercising your duties as an Appointer. These include;
- Fully understand the Trust instrument that you are responsible for
- If you do not understand your legal obligations and duties, seek professional assistance and explanations
- Review the Trust instrument to determine the scope and extent of your responsibilities
- If the Trust does not provide for you to receive financial documents related to the Trust or be fully informed as to the financial transactions of the Trust, request the Trust be amended to include access to this information
- Be sure the Trust provides for the Appointer to be apprised of any and all changes, distributions or investments being made by the Trustee
- Acquaint yourself with the various avenues available to you in the event a dispute arises between the Trustees and the beneficiaries
- If you were not aware of being appointed the Appointer of the Trust, consider the responsibilities and carefully review all that will be required of you before accepting the position
- If you are accepting the position, be sure the Trust provides for a method for a new Appointer to be named in the event that you must recuse yourself from your responsibilities or a successor Appointer needs to be named
It is an honour and a privilege to be asked or named as an Appointer for a Trust. In the event that you are selected to perform this task for a family member or a friend, there are many ways in which you can execute your responsibilities and obligations legally and successfully.
If you find yourself in need of assistance with this or any other legal issue, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.