Families often describe a trust as “our trust”, but legally a trust is a relationship in which a trustee holds assets for beneficiaries under the terms of a deed. Who can make decisions, and who can replace the decision-makers, is set by the deed. Understanding these roles is essential, both for good governance and to avoid unintended consequences in tax, family law and succession.
The main roles
- Settlor. The person who establishes the trust. In Australian family trusts the settlor is often a nominal figure with no ongoing role. In offshore trusts, the founder who contributes the wealth is often the economic settlor.
- Trustee. Holds legal title and makes decisions, often through a company whose directors are family members or a professional trust company.
- Appointor or principal. Can remove and appoint the trustee. In practice this is often the real seat of control.
- Protector. Common in offshore trusts. Must consent to key decisions, such as distributions, changes to beneficiaries or changes of law.
- Beneficiaries. Under a discretionary trust they have no fixed entitlement, only the right to be considered and to proper administration.
The trustee’s duties
Subject to the deed, trustees must act honestly and in good faith, avoid conflicts of interest, take reasonable care, preserve and safeguard the trust property, and account to beneficiaries. When investing, Victorian trustees must consider matters such as the suitability of investments and the need for diversification, review investments, and obtain advice where appropriate.
Tools families use to retain oversight
- Reserved powers. The deed may reserve investment decisions to the founder or another person. The trustee then retains a core duty to act honestly and in good faith, but not responsibility for those investment choices. Reserved powers must be used carefully: too much retained control can expose the structure to challenge as a sham or as the founder’s own property, and can change its tax treatment.
- Delegation to an investment manager. The trustee appoints a professional manager but must select, monitor and, where necessary, intervene.
- Exoneration and “anti-Bartlett” clauses. Where a trust holds shares in a family company, a clause may relieve the trustee from monitoring or intervening in the company’s management, except where it knows of dishonesty. These clauses are usually drafted broadly and can extend to newer asset classes such as digital assets. See trustees and digital assets.
- Investment committees. A formal committee of family principals, family office executives and independent professionals oversees investments, with clear rules for appointment and removal. Trustee representatives and advisers may attend as non-voting observers.
- Investment policy. A written policy setting asset allocation, risk appetite, prohibited investments, preferred advisers, and a framework for reporting and resolving disputes.
When control is too concentrated
In Australian family law, assets of a discretionary trust can be treated as the property of a spouse who effectively controls it, as the High Court held in Kennon v Spry (2008). In tax, Chinese and Australian rules both examine who controls and funds a structure. Good governance therefore means control that is real but shared, documented and subject to checks. See maker-checker governance for family offices.
Succession of control
Many family trust disputes arise because no one planned who would become appointor or director of the trustee company after the founder’s death or loss of capacity. The deed, the company constitution, the founder’s will and enduring powers of attorney must work together. See control of family trusts after death.
How we assist
We review and amend trust deeds, advise trustees and appointors on their powers and duties, prepare investment committee and governance documents, and plan the succession of control. We act in English, Mandarin and Cantonese. Justin Chua is a Nationally Accredited Mediator and an Affiliate member of STEP, the worldwide professional body for trust and estate practitioners.
Frequently asked questions
Who really controls a family trust?
Usually the trustee makes day-to-day decisions, but the appointor, who can remove and replace the trustee, often holds ultimate control. The deed determines who holds each power.
What is a reserved powers trust?
A trust in which the deed reserves certain powers, often investment decisions, to the founder or another person. It allows the family to keep influence over investments, but retaining too much control can create legal and tax risks.
What is an anti-Bartlett clause?
A clause that relieves a trustee holding shares in a family company from the duty to monitor or intervene in the company’s management, except where the trustee knows of dishonesty. It is common where the family runs the business.
Can a family trust be treated as one spouse’s property in a divorce?
Yes, in some cases. If one spouse effectively controls a discretionary trust, the Family Court may treat its assets as available for division.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice. Victorian law unless stated otherwise.
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