Many family businesses in Australia are run through a discretionary (family) trust. The beneficiaries are often a wide class: parents, children, grandchildren, their spouses and related companies. In practice, many of those people never see the trust deed and do not know when income has been distributed to them. Two appeal decisions show where the law currently sits.
No general duty to announce every distribution
In Segelov v Ernst & Young Services Pty Ltd (2015), the NSW Court of Appeal considered a trust used by a large accounting firm. Partners’ spouses could be nominated as beneficiaries. Distributions to one spouse were paid into a joint account with the partner, and she said she never knew about them.
The court held the trustee had no duty to tell her she was entitled. The trust deed said payment into a joint account fully discharged the trustee, and the court applied that clause. How the partner later used the money did not create a duty to notify after the event.
The lesson: the wording of the trust deed matters enormously. A well-drafted deed can limit what a trustee must do.
But trustees must genuinely consider the beneficiaries
In Owies v JJE Nominees Pty Ltd [2022] VSCA 142, the Victorian Court of Appeal went the other way on a different duty. The trustee of a family trust worth over $23 million had distributed income to the parents and one son. Two other children received nothing for several years.
The court found those distributions were made without real and genuine consideration of the two excluded children. The trustee had made no enquiries about their circumstances, although one had serious ongoing health problems. Even an “absolute” discretion did not excuse that. The court set the distributions aside as voidable and replaced the trustee with an independent one.
What this means for beneficiaries
- You may ask the trustee for a copy of the trust deed and the trust’s financial statements. A trustee cannot usually be forced to give reasons for a discretionary decision, but documents about the trust are a different matter.
- If you have been left out year after year, ask whether the trustee has ever considered your position.
- Disputes inside family trusts can run for years and become very public. Early mediation is often worth trying first.
What this means for trustees and family business owners
- Read the deed. Know who the beneficiaries are and what it says about notice and payment.
- Before each distribution, consider all the primary beneficiaries and keep a short written record of what you considered.
- If relationships are breaking down, consider an independent trustee or a succession plan for control of the trust.
Related reading
Chua Tan Associates advises family businesses on trusts, succession and family disputes, and offers accredited mediation. 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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