Family trusts are run by people, and people make mistakes. A distribution is made to someone who turns out not to be a beneficiary. A deed of variation is signed without checking whether the deed allows it. A resolution is drafted on a misunderstanding of the tax position, and a large and unexpected tax bill follows.
For Chinese and Asian families, mistakes often arise because the deed is old, in English and never fully explained, or because decisions were made at a distance with family in Hong Kong, Singapore or China. The first question is usually: can we undo it? This article explains, in general terms, when Australian law may allow a trustee’s decision to be set aside or a trust document to be corrected, and the limits of each route.
First, identify the kind of mistake
The remedy depends on what went wrong. Broadly, there are four different situations:
- the trustee did something it had no power to do;
- the trustee had the power, but did not exercise it properly;
- the trustee or settlor made a serious mistake about the transaction; or
- the document does not record what everyone actually agreed.
Acting outside power
If a trustee acts beyond the powers in the trust deed, for example by distributing to a person outside the class of beneficiaries, or amending the deed in a way the variation power does not allow, the act may be invalid. In that case there may be nothing to set aside: the purported decision may simply have had no legal effect. The money may have to be recovered, and that year’s income may then pass under the deed’s default provisions, with its own tax consequences.
Inadequate deliberation
A trustee with a discretion must exercise it in good faith, for its proper purpose, and with real and genuine consideration. In Victoria, the traditional test comes from Karger v Paul [1984] VR 161. In Owies v JJE Nominees Pty Ltd [2022] VSCA 142, the Victorian Court of Appeal found that a family trustee had failed to give proper consideration to the circumstances of two primary beneficiaries, and removed the trustee. Commentary on that decision notes that a decision made within power but without real and genuine consideration is generally treated as voidable rather than automatically void, so the court has a discretion over what relief to give.
Courts will not set aside a decision merely because it turned out badly.
The English position: Pitt v Holt and Futter
Families advised by lawyers in the UK, Hong Kong or offshore centres often hear about the “rule in Hastings-Bass”. In Pitt v Holt and Futter v Futter [2013] UKSC 26, the UK Supreme Court narrowed that rule. In broad terms it held that:
- a trustee’s decision made within power can be set aside for inadequate deliberation only where the failure amounts to a breach of the trustee’s fiduciary duty, and a trustee who reasonably relies on professional advice that turns out to be wrong will not usually be in breach; and
- separately, a voluntary disposition, such as a gift or settlement, can be rescinded for mistake where there was a causative mistake of sufficient gravity, so that it would be unconscionable to leave it uncorrected. Tax consequences can be relevant to how serious the mistake is.
Australian courts have not simply adopted this framework. There is no settled Australian authority applying the rule in Hastings-Bass as such, and Australian commentators have urged caution before relying on the English cases. Australian courts tend to analyse these situations through the established principles on trustee discretions and the general equitable doctrines of mistake and rectification. An Australian court may take a different view from an English one.
Rescission for mistake
Equity may allow a voluntary transaction, such as a gift into a trust or a disposition by a trustee, to be set aside where it was made under a serious mistake. The mistake generally needs to be about the nature or effect of the transaction, not simply a misjudgment about how things would turn out. Relief is discretionary and depends closely on the facts.
Rectification of a trust deed
Where a deed does not record what was actually intended, for example a wrong name, a missing clause or a drafting slip, the court may order rectification so the document reads as it should have. Sometimes a mistake can instead be resolved by the court construing the deed, where the error is obvious and so is the intended meaning.
Families often sign a “deed of rectification” privately to fix an error. That may be effective between the parties, but it has limits. In Trustee for the Michael Hayes Family Trust v Commissioner of Taxation [2019] FCA 426, the Federal Court indicated that where the Commissioner disputes the tax effect of a private deed of rectification, the taxpayer needs to obtain and prove an entitlement to a court order, and the Commissioner should ordinarily be joined to the rectification proceeding.
Court directions and advice
Where a trustee is uncertain about its powers, or about whether to act on a correction, it can apply to the Supreme Court for advice or directions. In New South Wales this is under section 63 of the Trustee Act 1925; other states have their own procedures. Acting on the court’s advice can protect the trustee personally, and it is often a sensible step before making a significant corrective decision.
Tax-driven mistakes and the ATO
Many trustee mistakes come to light because of tax. In general terms, the ATO’s approach is that tax depends on the legal position at the relevant time, and a private document signed later cannot rewrite what happened. The ATO may accept that a court order correcting a document operates as the court says, but it may oppose an application, and the court will usually want the ATO to be involved. The ATO also generally accepts later written records as evidence of a resolution genuinely made on time, but not a resolution made after the deadline and backdated.
With the reformed CGT rules applying from 1 July 2027, and the proposed 30% minimum tax on discretionary trusts not yet law (as at October 2026), many families are reviewing their deeds now. That is the right time to find and correct mistakes.
Practical steps if you suspect a mistake
- Do not sign anything further that relies on the uncertain decision.
- Gather the original deed, all variations, resolutions, minutes and the advice received at the time.
- Identify which kind of mistake it is: no power, poor process, serious mistake or a drafting error.
- Get legal advice on the available remedy and tax advice on the consequences of each option.
- If a court application is needed, consider whether the ATO should be notified or joined.
- Do not backdate documents. Record what is done, when it is done.
Frequently asked questions
Can a trustee mistake be rectified in Australia?
Sometimes. A court can rectify a deed that does not record what was intended, and may set aside some decisions made outside power, without proper consideration or under a serious mistake. Each remedy is discretionary and depends on the facts.
Does Pitt v Holt apply in Australia?
It is a UK decision and is not binding in Australia. Australian courts have not simply adopted it and generally apply local principles on trustee discretions, mistake and rectification. An Australian court may reach a different result.
Can a trustee change a distribution resolution after 30 June?
Generally, a trustee cannot make a fresh income resolution after the deadline set by the deed and tax law and backdate it. Later records can evidence a decision genuinely made on time. If the original resolution was defective, legal and tax advice should be taken before doing anything.
How Chua Tan Associates can help
Chua Tan Associates reviews family trust deeds, variations and resolutions to identify what has gone wrong, explains the available remedies in plain language, and prepares corrective documents or court applications where needed, including applications for advice or rectification. Justin Chua trained in accounting and is an Accredited Family Business Advisor and a Nationally Accredited Mediator and Family Dispute Resolution Practitioner, which helps when a correction affects family members differently and needs to be agreed. We work alongside the family’s accountant and local lawyers overseas, in English, Mandarin and Cantonese. Because tax outcomes are often central, we recommend acting with advice from a qualified tax adviser working with your lawyer.
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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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