For many Chinese and other Asian families, wealth is not only an individual matter. It is the result of a family’s work across generations, and there is a strong wish that it stays “in the bloodline”: with children, grandchildren and their descendants, and not with a son-in-law or daughter-in-law after a divorce or remarriage. Some families go further and want wealth to stay with those who carry the family surname.
In Australia, these wishes are often addressed through what are commonly called “bloodline clauses” in family trust deeds and wills. They can be useful, but they are often misunderstood. This article explains what they generally do, where they must be written to be effective, and their limits.
How beneficiaries are usually defined
A family trust deed, or a will that creates a testamentary trust, will contain a definition of who can benefit. Standard deeds often define beneficiaries very broadly, for example:
- named primary beneficiaries, such as the founder and their spouse;
- their children, grandchildren and remoter descendants;
- the spouses of any of those people;
- parents, siblings, nieces and nephews; and
- companies and trusts in which any of those people has an interest.
Broad definitions give trustees flexibility, including for tax planning. But they also mean that, by default, a child’s spouse, and companies or trusts connected with that spouse, may be eligible to receive income or capital. Many families are surprised to learn this when they first read their deed closely.
What a bloodline clause typically does
A bloodline clause is not a single standard form of words. It is a set of provisions tailored to the family’s wishes. Depending on the drafting, it may:
- limit capital, and sometimes income, to the founder’s lineal descendants;
- exclude spouses of children and grandchildren, or allow them to receive income only, or only while married to and living with a descendant;
- remove a spouse automatically as a beneficiary on separation, divorce or the death of the descendant;
- state expressly whether adopted children, step-children and children born through assisted reproduction are included;
- deal with what happens to a deceased child’s share, for example passing it to that child’s own descendants rather than to the surviving spouse;
- restrict who may become trustee, appointor or guardian, so that control also stays within the bloodline; and
- exclude foreign persons where needed, which may also be relevant to land tax and stamp duty surcharges in some states.
Control matters as much as benefit. A trust whose beneficiaries are limited to descendants, but whose trustee or appointor can pass to an in-law, may not achieve the family’s aim.
The definitions must be in the binding document
Families sometimes record bloodline wishes in a family charter, a family constitution or a letter of wishes. These documents can be valuable for explaining values and guiding trustees, but they are generally not binding. If the trust deed or will says one thing and the charter says another, the deed or will will usually prevail.
The definitions of “descendant”, “spouse”, “child” and related terms belong in the trust deed or the will itself. Vague expressions in non-binding documents, such as “family members” or “those who are truly part of our family”, invite argument and may be challenged. Precise drafting reduces the room for dispute.
A word about “surname” clauses
Some families want wealth to stay with those who carry the family name. These clauses are hard to draft well. Questions arise quickly: what if a daughter keeps her surname after marriage, or her children take her husband’s name? What if a grandchild changes their name, uses a different romanisation, or adopts an English name? A criterion based on surname may be uncertain in operation, and in practice it often excludes daughters and their children, which can be seen as unfair and create lasting family conflict. Most families find that a clause based on lineal descent achieves their real aim more reliably.
The limits of bloodline clauses
Bloodline clauses can make it less likely that wealth passes outside the family, but they are not a guarantee. Important limits include:
- Family law. In property proceedings under the Family Law Act 1975 (Cth), the court can consider a party’s interest in or control of a trust. Where a child has effective control of a trust, its assets may be treated as available for division; even where they do not, the trust may be treated as a financial resource. A bloodline clause can help, but it does not place trust assets beyond the reach of the family courts.
- Family provision claims. Each state and territory allows certain people to apply to court for further provision from a deceased estate. Who is eligible differs between states, and some states can, in some circumstances, reach assets outside the estate. A spouse of the deceased, and in some cases other people who were dependent on the deceased, may still be able to make a claim even where the will contains bloodline provisions.
- Amending an existing deed. Adding bloodline provisions to an existing family trust requires checking that the deed contains a suitable power of amendment and that the change is within it. A poorly handled amendment may risk being treated as creating a new trust (a “resettlement”), which can have capital gains tax and stamp duty consequences. Some states may also charge duty on certain trust variations.
- Tax. Narrowing the class of beneficiaries reduces flexibility in distributing income. Where a family trust election has been made, distributions outside the defined family group may carry tax consequences. The Government has also proposed a 30% minimum tax on discretionary trusts from 1 July 2028; the draft law would let some existing trusts elect to fix beneficiaries’ entitlements instead, which interacts directly with how beneficiaries are defined. Tax advice should be obtained before amending a deed.
- Trustee discretion. In a discretionary trust, the trustee still decides who among the eligible beneficiaries receives what. A letter of wishes to the trustee, and where appropriate a protector or guardian with oversight powers, can help guide those decisions.
Equal division or needs and contribution? Have the conversation
In many Asian families, the first generation instinctively prefers equal division between children. The second generation is sometimes more inclined to consider needs and contribution: the sibling who cared for ageing parents, the one who built the family business, or a grandchild with a disability. Neither view is wrong, but they lead to different drafting.
Bloodline provisions tend to work better when the family has discussed them openly. Children who learn for the first time after a parent’s death that their spouse has been excluded may feel hurt, and a well-meant clause can become the starting point of a dispute. A facilitated family meeting can help each generation explain its view before documents are finalised.
Composite example (anonymised and hypothetical)
This example combines features of situations commonly seen in practice. It does not describe any real family.
Mrs H, a widow in Sydney originally from Taiwan, has a family trust that holds two investment properties and a share portfolio. Her deed, prepared decades ago from a standard template, includes spouses of her children as beneficiaries. Her son recently separated from his wife, and Mrs H asks whether her daughter-in-law could receive trust assets.
A review of the deed shows that the daughter-in-law is a beneficiary, although the trustee has never made a distribution to her. After obtaining tax advice, the deed is amended under its existing amendment power to exclude spouses of descendants from capital, and to remove any spouse automatically as a beneficiary on separation. The appointor provisions are updated so that control passes to her children and then to her grandchildren. Mrs H also signs a letter of wishes explaining that she would like her grandchildren’s education to be supported. Her family law position is not changed by these steps alone, and her son is advised to obtain his own family law advice about the separation.
Review periodically and confirm who the beneficiaries are
Families change. Children marry, separate and have children of their own; some move overseas. Trust deeds and wills that were appropriate ten years ago may no longer reflect the family’s wishes or circumstances. It is good practice to review the beneficiary definitions, the trustee and appointor succession provisions and any letters of wishes every few years, and whenever there is a marriage, separation, birth or death in the family.
Frequently asked questions
Will a bloodline clause stop my child’s spouse from receiving anything if they divorce?
It may reduce the risk, but it cannot guarantee that outcome. A bloodline clause can prevent the spouse from being a beneficiary of the trust, but in family law property proceedings the court can still take into account your child’s interest in, or control of, the trust. The degree of protection depends on how the trust is structured and controlled.
Can I add a bloodline clause to my existing family trust?
Often, yes, but it depends on the amendment power in your existing deed. The change must be made carefully to avoid unintended tax or stamp duty consequences, including the risk of a resettlement. We recommend that the deed is reviewed by a lawyer and that tax advice is obtained before any amendment is made.
Is a letter of wishes enough to keep wealth in the bloodline?
Generally not on its own. A letter of wishes is usually not legally binding. It can guide trustees, but the essential definitions of who may benefit, and who controls the trust, should be set out in the trust deed or will itself.
How Chua Tan Associates can help
Chua Tan Associates advises families across Australia on wills, testamentary trusts, family trusts and succession planning, including reviewing and amending existing trust deeds, and works closely with families’ tax advisers and with lawyers overseas. Justin Chua is a Nationally Accredited Mediator and Family Dispute Resolution Practitioner, and an Accredited Family Business Advisor, and can help families talk through sensitive questions such as the role of in-laws before documents are signed. We advise in English, Mandarin and Cantonese.
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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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