Sometimes a trustee must make a decision the family cannot agree on. One branch wants a large capital distribution, another objects, and the guardian or appointor says to wait. The trustee may be a company run by a widow and a long-serving finance manager, or a family-office trustee in Singapore or Hong Kong. Either way, it must decide.
This article explains, in general terms, the options for a trustee of an Australian or offshore family trust when it and the family are stuck.
A hypothetical family
Consider the Lau family trust. The founder, who built a food import business in Melbourne, has died. The trustee company’s directors are his widow and the business’s long-time finance manager. His son runs the business and asks the trustee to transfer the warehouse to him outright. His daughter in Kuala Lumpur, the trust’s guardian, objects. Her late brother’s two young children are also beneficiaries. The transfer would be large, contested and hard to reverse.
Read the deed first
The trustee should first check what the guardian’s or appointor’s role actually is. Some deeds give a wide power, such as a consent that operates as a veto, so the distribution cannot validly be made without it. Others give a narrow role, such as a right to be consulted. If the Lau daughter only has a right to be consulted, her objection has no legal force once she has genuinely been consulted.
Even so, keeping her engaged is usually wise. A trustee that brushes aside an objection may win the point and lose the family. But listening is not obeying. The discretion belongs to the trustee, and it must make its own decision rather than hand it to the guardian, the widow or anyone else.
Talk before anything formal
Once a formal resolution or written request for consent is circulated, people take positions and defend them. Informal discussions beforehand let the trustee understand the real concerns and adjust the proposal. The daughter’s worry may be fairness to her brother’s children rather than the warehouse itself, and a lease, a staged transfer or an equalising distribution might meet it.
Judicial advice and directions in Australia
An Australian trustee can ask the Supreme Court for advice. In New South Wales, section 63 of the Trustee Act 1925 allows a trustee to apply for the court’s opinion, advice or direction on the management or administration of trust property or the interpretation of the trust instrument. In Victoria, trustees usually apply under rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 and the court’s inherent supervisory jurisdiction over trusts. Other states and territories have comparable procedures, though their scope differs.
The leading case is the High Court’s decision in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop (2008) 237 CLR 66; [2008] HCA 42. The Court held that the NSW provision should not be read narrowly: it is not confined to non-adversarial matters, and the existence of a dispute does not by itself prevent the court from advising. It also said a trustee sued for breach of trust should generally obtain advice before defending at the trust’s expense.
Judicial advice is private advice on whether the trustee would be justified in a course of action, and its value is protection. In New South Wales, a trustee that acts on it is treated as having discharged its duty on that matter, unless the advice was obtained by fraud, wilful concealment or misrepresentation. Full disclosure of the facts is essential.
A court’s blessing of a momentous decision
English courts use a framework from Public Trustee v Cooper [2001] WTLR 901, applied in later cases such as Cotton v Earl of Cardigan [2014] EWCA Civ 1312. It describes four kinds of application:
- whether a proposed action is within the trustee’s powers;
- whether a particularly momentous decision the trustee has already made is a proper exercise of power, so that the court can bless it;
- where the trustee surrenders its discretion to the court, which the court accepts only for good reason, such as deadlock or conflict; and
- where action already taken is challenged.
On a blessing, the court does not decide for the trustee. It checks that the trustee has actually formed its view, that a reasonable trustee could reach it, and that it is not tainted by a conflict of interest. Australian courts deal with these questions through judicial advice, and may not follow every English refinement.
When a blessing is worth it
It is most useful for large, contested or irreversible distributions, and where the trustee or its directors are conflicted. The Lau transfer has all three features. It is less useful where cost, delay and possible publicity outweigh the protection. If every adult beneficiary agrees and the trustee is not conflicted, a blessing is often unnecessary, unless minors or unborn beneficiaries are affected, because nobody can consent for them without the court.
When there is a stalemate
Deferring the decision indefinitely is rarely a proper answer. A trustee must genuinely consider whether to exercise its powers, and doing nothing because the family is divided may itself be a failure of duty.
The usual next step is mediation with a mediator experienced in family and trust disputes. The trustee, the guardian or appointor, adult beneficiaries and their lawyers should attend, and family members overseas can join online. Minors and unborn beneficiaries need their interests separately represented, usually by a lawyer or guardian acting for them, and a settlement affecting them may need the court’s approval.
If mediation fails, the formal route is to apply to the court for advice or directions. Retiring as trustee is not an escape: it does not remove responsibility for past decisions, a replacement may be required before the trustee is discharged, and the problem passes to the next trustee.
Protecting the trustee
- Keep records of what was considered, who was consulted and why.
- Give reasons where appropriate. A short explanation can defuse suspicion, even where the deed does not require it.
- Take independent advice for the trustee, not advice borrowed from one branch of the family.
- Manage conflicts. A director who is a beneficiary, or who works for the family business or family office, is conflicted. The Lau finance manager reports to the son who wants the warehouse. Conflicts should be declared, and an independent director may be needed.
A practical escalation ladder
- Informal discussion with the guardian or appointor and key beneficiaries.
- Formal consultation: a written proposal with reasons and time to respond.
- A facilitated family meeting run by a neutral person.
- Mediation, with all affected interests represented.
- Judicial advice or directions. For an offshore trust, this is usually a court of the governing law, so local advice is needed.
Frequently asked questions
Can a trustee ask the court for advice?
Yes. In New South Wales a trustee can apply under section 63 of the Trustee Act 1925, and in Victoria under the Supreme Court rules and the court’s supervisory jurisdiction. Acting on the advice after full disclosure generally protects the trustee on that question.
When should a trustee seek court directions?
When it has a genuine doubt about its powers, faces a significant contested or irreversible decision, or is about to defend a claim at the trust’s expense. It usually follows consultation and mediation.
How does trust dispute mediation work?
A neutral mediator meets the trustee, beneficiaries and their lawyers, together and separately, to help them reach a private agreement. A settlement affecting minors or unborn beneficiaries may need court approval.
Can a trustee resign to avoid a family dispute?
It can usually retire, but that does not remove liability for past decisions, and the problem passes to the replacement.
How Chua Tan Associates can help
Chua Tan Associates advises trustees, guardians, appointors and beneficiaries when a family trust decision has stalled. We read the deed to work out who holds which power, help trustees consult and record decisions properly, and prepare applications for judicial advice or directions. Justin Chua is a Nationally Accredited Mediator and Family Dispute Resolution Practitioner, and an Accredited Family Business Advisor, and he trained in accounting, so he can run or support a family meeting or mediation with a grasp of both the relationships and the numbers. We assist clients across Australia and overseas, work with local lawyers where an offshore trust is involved, and advise in English, Mandarin and Cantonese.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in 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.
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