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Challenging a Trustee’s Discretion

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Hello. I’m Margaret Arthur, a partner with CRH Law. Today I’ll be speaking about whether it’s possible to challenge a trustee’s discretion.

Many people have what are called discretionary family trusts and the reason they’re called discretionary is because the trustees have very wide powers to decide who it is that will receive benefits from the trust. Often the beneficiaries are family members and it can be a broad ranging group of family members that are named as the beneficiaries in the trust.

The trustee can decide who receives income from the trust, when, and they can also decide as to how much property or money might be distributed in the long run to those trustees. The trustees have a great deal of power. Sometimes the beneficiaries might become disgruntled. They might feel that the trustee is favouring particular beneficiaries over others, and it may be that the trustee in the e yes of the beneficiary is favouring their own close relatives rather than perhaps people who were intended to properly benefit from the trust.

What can be done? Can they, the disgruntled beneficiary, challenge the trustee’s powers? Well, in Queensland, it is possible. Under Section 8 of our Trust Act, it is possible for anybody with an interest in the trust to apply to the Supreme Court for the court to review the trustee’s exercise of discretion.

Now having said that, it’s not always easy to convince the court that they should interfere with what appeared to be very wide powers held by the trustee, but even so the court does have the ability to look at whether the trustees are exercising their powers properly and for the purpose for which the trust was originally set up.

It can sometimes be that the court is not able to interfere with the trustee’s powers, for example, but that they are sufficiently concerned to actually remove the trustee and to put in somebody else. Although it can be difficult because the very nature of a discretionary family trust is one that basically provides a trustee with the ultimate decision-making about who will benefit, even though it is difficult, there is some recourse in Queensland to actually have those powers reviewed.

If you are a disgruntled beneficiary, then you’d be wise to try to get a copy of the trust and information about why the trust was originally set up. Because the matters are quite complex, you should get legal advice but certainly there may be an option to you under our particular Trust Act.

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