Do you have trust issues? Removal of beneficiaries
Be reasonable with removal!
In the final part of our trust series, we look at removing beneficiaries from discretionary trusts, and how the courts have approached this area of law in recent years.
Beneficiaries can only be removed when there has been an exercise of power in good faith by a trustee, in accordance with the trust deed.
Any attempt to remove beneficiaries for a purpose other than those specified in the trust deed may cause a fraudulent exercise of trustee power, making the removal void.
Can a trustee remove beneficiaries?
The terms of the trust deed will set out if a trustee can remove a beneficiary. In many cases, there is a specific power given to the trustee to do this. This can often be done without the agreement or consent of the beneficiary.
If there is no specific power, the trustee can often use the variation or amendment power to remove a beneficiary.
In exercising the power, a trustee is under a duty to act responsibly and in good faith. Care must be taken to ensure, among other things, the trustee does not breach its duties.
Improper removal of a beneficiary
If a trustee misuses its power under the trust deed, the beneficiary may seek removal of the trustee through Court intervention.
The Court will scrutinise the trustee’s reasons for exercising a discretionary power to determine whether:
- it gave real and genuine consideration to exercising the discretion; and
- the trustee had an ulterior or improper purpose.
The trustee must also strictly comply with the trust deed. If the trustee, for example, has the power to remove a general beneficiary, but it uses that power to remove a specified or named beneficiary, then that exercise of power is beyond the terms of the deed and will be invalid.
Key takeaways for trustees
Recent cases confirm the purpose, scope and proper exercise of a trustee’s power are all important considerations when attempting to remove beneficiaries.
Minimising risk to the trustee in such a scenario can be as simple as:
- reading the terms of the trust deed and understanding the specific powers granted to the trustee;
- ensuring the trustee has a genuine reason and proper purpose for removing a beneficiary;
- clearly documenting the trustee’s reasons and decisions; and
- getting the drafting in the trust deed right at the outset, so that it contemplates an appropriate power and mechanism to remove beneficiaries.
Despite these practical steps, seeking professional advice is recommended as we see changing family dynamics and wealth transfer increase the complexity of discretionary trusts, as well as the risks.
This article was written with the assistance of Jessie Langhammer, Law Graduate.
 Gisborne v Gisborne (1877) 2 App Cas 300.
 Campbell v T L Clacher No 2 Pty Ltd & Ors  QSC 218.
 Curwen v Vanbreck Pty Ltd  VSC 338, .
 Mandie v Memart Nominees Pty Ltd  VSCA 281; Jordan v Goldspring (No 2)  NSWSC 215.
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