Family Trusts: removing trustees and the limits of their powers

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Aintree Group Legal’s Series on Trusts – Part 2

As part of Aintree Group Legal’s ongoing series on Family Trusts, this week we look at just how far a trustee can go in acting in their own interests.

People may think that their family trusts are like their private companies, and that they can treat those trusts as their own personal property. Unfortunately, this is not strictly true.

In particular, trustees are subject to a series of fiduciary duties owed to the trust’s beneficiaries which require trustees to act for the benefit of all of the beneficiaries and only following real and genuine consideration.

A Landmark Case

When trustees make routine decisions to distribute income to themselves, they might think they are simply distributing their own money to themselves. They might also reasonably point out that their trust deeds expressly grant them powers to make decisions as they see fit. This was the case in a recent Victorian Supreme Court decision (Owies v JJE Nominees) where the trust deed explicitly said that:

… ‘every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion’.

Straight forward, no? A trustee can do whatever they like, right?

Not really.

A trustee’s discretionary powers are not unbounded.

In the Owies case, trustees routinely distributed income to the same three wealthy beneficiaries in preference to poorer and neglected family members who received comparatively small distributions from the trust.

In summary, the trustee’s routine decisions to distribute to themselves were voidable for failure to give real and genuine consideration to the pressing financial needs of the poorer beneficiaries.

Trustees can be removed from office

Trustee’s must act free of conflict of interest, for a proper purpose, in the best interests of beneficiaries and with real and genuine consideration.

Why does this matter?

Because aggrieved beneficiaries can seek court orders to remove recalcitrant trustees from office. A trustee that is acting contrary to its duties is potentially liable to be removed from office.

Consider that in the context of a family dispute.

Aside from loss of control of the trust – and any trust assets – these disputes are likely to cause significant disruption to the family as well as any business run through the trust. And the removal of a trustee may also cause real problems for family succession planning.

It is therefore essential that trustees understand that they cannot simply do as they please, and must carefully consider the interests of the trust’s beneficiaries before acting.

To understand your duties as a trustee and how to act with a family trust, contact us today!