Trustees beware
Many of our clients are trustees of discretionary trusts or self managed superannuation funds or are directors of companies which are trustees of these entities.
It is an important obligation on trustees that they –
act in good faith, responsibly, and reasonably;
inform themselves, before making a decision, of matters which are relevant to the decision; and
seek professional advice when required.
A trustee must properly inform itself of the size and scale of the trust, nature of relationships within the trust, and the purposes of the trustee’s power.
Trustees risk being removed as trustees and also may be held personally liable for losses suffered by the trust or by beneficiaries if they are found to be in breach of their fiduciary duties.
In 2 recent Victorian cases trustees were removed.
In Wareham v Marsella [2020] VSCA 92 a daughter and her husband were trustees of the deceased mother’s self-managed super fund. As trustees they exercised their discretion to pay the entirety of the mother’s death benefit to the daughter, thereby wholly excluding the deceased’s husband (being the daughter’s stepfather). There was no evidence that the trustees made inquiries about potential beneficiaries of the death benefit and the court found it “extraordinary” that the deceased’s “husband of more than 30 years received no amount despite his limited financial means”
The Court –
removed the daughter and her husband as trustees on the basis that they exercised their discretion without real and genuine consideration of the interests of the dependants of the fund; and
set aside the decision to pay the entirety of the mother’s death benefit to the daughter.
In Owies v JJE Nominees Pty Ltd [2020] VSC 716 and [2022] VSCA 142 the trustee of a discretionary trust was removed on the basis that over a number of years it had failed to act impartially and give real and genuine consideration to the interests of two primary beneficiaries, and that the relationship between the trustee and beneficiaries was irreparably damaged such that it was not in the best interests of the beneficiaries for the trustee to continue in office. The trustee had not adequately informed itself of the circumstances of two primary beneficiaries before exercising discretion to distribute from the fund. The trustee failed to investigate or inquire and instead relied upon strained (and at times estranged) family relationships within the trust.
The advice to trustees is that they should –
familiarise themselves with the terms of the trust deed to ensure they understand their powers, the breadth of their discretion, and that their ongoing decisions are consistent with the purposes of the trust;
seek professional legal, financial, and accounting advice so that the trustee may make informed decisions based on accurate and current information with an ongoing awareness of their obligations and duties as trustee;
regularly review the trust deed and make any necessary variations to ensure it continues to serve the best interests of the beneficiaries as a whole;
document the decision-making process by keeping a written record of inquiries made, steps taken and information reviewed.
If you are unsure of your obligations or duties as a trustee or have any other related concerns, seek legal advice from us here at Bradley & Bray, your leading business, commercial, and succession lawyers on the Sunshine Coast.
By Peter Griffin (with thanks to Jacqui Thomas of Sun Wills and Estates)
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers takes no responsibility for any use of the information provided in this article.
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