Trusts, companies, and a need to think about intentions at death

In recent decades, family trusts have become a popular vehicle for Australians to protect and grow their wealth, owing to the flexibility, asset protection and tax efficiency advantages they provide. However, the succession and control of trusts on the death of the original family members who established them is often poorly understood and inadequately planned for, despite the sometimes significant assets at stake.

Trusts hold assets externally from an individual. Those assets do not pass in accordance with the will of the person who established or controls the trust.

The governing document of a trust is a trust deed. The trustee of a trust is bound to act in accordance with the trust deed. Key considerations when considering succession of family trusts as part of an overall succession plan include:

  • How control of the trust will be passed on the death of a key individual; and
  • Whether the trust deed is fit for purpose and consistent with the controller’s objectives and prevailing family circumstances.

As circumstances change, a trust deed needs to be flexible enough to permit it being changed to meet those circumstances, but often they are not.

Often a trust deed will provide a mechanism for a trustee to vary its terms but the extent to which these variation powers are permissive or restrictive varies from trust to trust and sometime does not exist at all. But can a trust deed be varied if the trust deed is silent on a power of variation? In some circumstances the beneficiaries may be able to consent to changes. In others, the Court’s assistance may be required.

The Court has the power to vary the terms of trusts1, and this was highlighted in two judgments: W E Pickering Nominees Pty Ltd & Ors v Pickering & Ors [2016] and Re The Pickering Family Trusts [2024] stemming from the same subject matter.

Two brothers, two trusts, and the Victorian Supreme Court’s powers to vary a trust deed

Two brothers, Ted and George, operated a large and successful business through a unit trust. The units of that trust were held respectively by two discretionary family trusts; ‘Ted’s Trust’ and ‘George’s Trust.’

Ted’s Trust named Ted, Ted’s wife, their children, and their grandchildren as beneficiaries. George’s trust followed suit for his own family. Ted died in 2012. George died in 2020.

For business and tax planning reasons, the trustee and existing beneficiaries of each trust sought to expand the beneficiary class beyond those named in the trust deeds.

The trustees and adult beneficiaries were able to agree on amendments to the trust deeds; however, neither trust deed gave the trustee the power to vary the deed or expand the classes of beneficiaries. The trustee and beneficiaries required the assistance of the Court to give effect to their proposed amendments to the trust.

Ted’s trust variations ‘knocked back’

In the 2016 case, the trustee and adult beneficiaries requested three variations to the trust deed:

  • The inclusion of a power to vary the trust;
  • The inclusion of a power to appoint an appointor (a person who can appoint and remove the trustee); and
  • The expansion of the class of beneficiaries.

The Applicants argued that the Court had power under sections 63 and/or 63A of the Trustees Act 1958 (Vic) to give effect to the variations sought. The Court declined to do so, saying that ‘conferring on the trustee a power to vary the terms of the trust is neither expedient nor in the management or administration of trust property’2. Additionally, the Court was not persuaded that it was authorised to use section 63A to ‘grant a general power to amend or a power to appoint an appointor.’3

A ‘business-like’ arrangement

The matter returned to Court and the expansion of the class of beneficiaries was re-addressed.

A new arrangement was proposed which would name the beneficiaries and potential beneficiaries of one family trust as beneficiaries and potential beneficiaries of the other. It was reasoned that a reduction in potential entitlement in one trust should be expected to be accounted for by an increase of potential entitlement in the other trust.4

By applying to Court together, each trustee gave undertakings as to how the trusts would be administered, and those representations gave rise to further possible financial benefits for beneficiaries for whom the Court’s consent was required.5

The Court accepted that the new arrangement was beneficial to the beneficiaries for whom its consent was to be extended and that it was a proper and fair one.

Was any of this really necessary?

Too often trusts and other entities are established to own substantial family wealth without proper consideration of whether the trust deed and other key documents are fit for purpose, flexible enough to change as circumstances change, and work within the broader succession plan.

Once established, it is critical that ongoing specialist advice is sought to ensure that the trust’s “settings” can do the job that is desired of it.

How we can help

Moores has one of the largest specialist estate and trust law teams in Australia. Our team is a market leader in designing and implementing complex succession and wealth planning solutions and resolving disputes concerning trusts and estates.

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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.

1 Trustee Act 1958 (Vic), s63A.

2 W E Pickering Nominees Pty Ltd & Ors v Pickering & Ors [2016] VSC 71, paragraph 77-78.

3 Ibid, paragraph 60.

4 Re The Pickering Family Trusts [2024] VSC 5, paragraph 84.

5 Ibid, paragraph 92.