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Trusts, powers and default appointment clauses

Published on 01 Dec 14 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

A default appointment clause in a trust deed is a clause which operates where the trustee fails to exercise the discretion to either distribute or accumulate trust income, or distribute the capital on the trust vesting. Must a valid discretionary trust include a default appointment clause? After all, the consequence of incompetent or inappropriate drafting may be that the trust is void for uncertainty, resulting in there being no trust.

This article argues that a default appointment is not necessary, provided the trust deed is drafted appropriately, the intentions of the parties establishing the trust are clear, and the trust deed suits the client’s circumstances and objectives. The article provides an overview of trusts, powers and default appointment clauses, and examines the underlying English and Australian case law, to conclude that a default appointment is not required when the correct trust or power is bestowed on the trustee.

Author profiles:

John Ioannou

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Darius Hii

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