A discretionary trust is often called the “Swiss army knife” of estate planning and asset protection - versatile, powerful and capable of handling the challenges that families and businesses face. But what happens when that knife is never opened, sharpened or checked? Over time, the blade dulls, the tools jam, and when the moment comes to rely on it, it fails. We have seen families caught in exactly this situation: a trust once set up to protect wealth and provide flexibility instead becomes outdated, ineffective, or worse, a source of conflict.
At Mellor Olsson, we regularly help clients sharpen and adjust their trusts to ensure they remain fit for purpose. Laws change, tax rules shift, and family circumstances evolve; meaning that a trust left untouched can quietly turn from a safeguard into a liability.
This article tackles the questions we are most frequently asked and the issues we most often solve. From succession and control to compliance and tax planning, these insights will help ensure your trust remains a reliable tool.
1. Do I really need to review my trust deed?
Yes! A trust is only as effective as the deed that governs it. Too many people set up a trust and then forget about it. Laws, tax rules, and family circumstances change constantly. A deed that worked perfectly 10 or 20 years ago may now be outdated, or even detrimental to the interests of the beneficiaries. A regular review is like servicing a car: ignore it too long, and problems build quietly until they are costly or impossible to fix.
2. Who actually controls my trust?
The trustee runs the trust day-to-day, is the legal owner of the trust’s assets and manages them in accordance with the trust deed for the benefit of the beneficiaries.
However, the real power usually rests with the person who can hire or fire the trustee, known as the appointor. If you do not know how succession is dealt with in your trust deed, you may not have the control you think you do. This is often where disputes start, particularly when a family member assumes they will “inherit” control, but the deed says otherwise.
3. I want to leave control of the trust to my son, but the appointor clause doesn’t allow it
In our view, this is the single most common, and most critical, problem that we see in trust deeds. The appointor holds the real power as the appointor controls who the trustee is. If this clause is not kept up to date, it can completely derail the flexibility and succession planning that you had in mind.
Some trusts do not provide for successor appointors at all. Other trusts have appointor succession drafted into the deed, automatically passing control to a nominated child on the death of mum and dad. Even worse, some deeds have restrictive variation clauses that prevent amendments to the appointor clause, effectively locking the trust into a path that may no longer reflect the family’s wishes or best interests.
Getting this clause right is essential. It can mean the difference between a trust that smoothly transitions control in line with your intentions, and one that sparks disputes, confusion, or unwanted outcomes at the worst possible time.
4. Can I add or remove a beneficiary?
Whether a beneficiary can be added or removed depends on the powers set out in the trust deed. Some deeds give trustees or the appointor this flexibility, while others require a formal amendment to the deed.
Any change to the beneficiaries of a trust must be carefully considered. An amendment to the beneficiaries, especially those for whom the trust was originally created, can trigger a resettlement of the trust which may have tax consequences including capital gains tax and stamp duty.
Even where the trust deed contains an express power to amend the beneficiaries, a trustee must act in good faith and in the best interests of the existing beneficiaries.
A beneficiary can usually renounce his, her or its interest in a trust and such renunciation can be recorded in a deed.
5. What happens if my trustee resigns, dies or becomes bankrupt?
This is a scenario too often overlooked. Many deeds do not clearly deal with replacement trustees, or they leave gaps that cause disputes. If the wrong person becomes a trustee, control of the trust’s assets can shift in ways the original parties never intended. Planning for succession of the trustee is just as important as planning for the succession of the appointor.
6. Is my trust still tax effective?
Tax law is one of the fastest changing areas of law and trusts are in the firing line. Rules around streaming income, distributing to minors and Division 7A loans all change regularly. A trust that once saved tax may now create unexpected liabilities. Keeping your deed updated can prevent unexpected tax liabilities.
7. When does my Trust end?
Trusts are not meant to last forever. Once they reach their “vesting date,” the trust’s assets must be distributed. In most Australian states and territories, statues provides that a trust may only exist for up to 80 years. However as South Australia has not such rule, most vesting dates are determined by the trustee. Whether a trust is a South Australian trust will depend on a number of factors, including whether the trust deed states that it is governed by the laws of South Australia, and the state or territory in which the assets of the Trust are located.
Older South Australian trust deeds may include vesting dates which can create complications if not addressed. Without proper planning, reaching the vesting date can trigger unwanted tax consequences or force distributions that do not align with your wishes. Understanding when your trust ends, and preparing for it in advance, helps to avoid last-minute surprises and ensure that your intentions are fulfilled.
8. Can I transfer a piece of trust land to one child during my lifetime without causing tax liabilities or family drama?
On one hand, you may want to transfer a specific property to one child now. On the other, you will want to avoid unnecessary stamp duty, capital gains tax and family arguments.
If your child is a beneficiary of the trust and the trust deed grants the trustee with the power to distribute the land, then a stamp duty exemption may apply. Similarly, certain primary production land or qualifying land transfers may be exempt from stamp duty. Even so, careful planning is essential to ensure the deed allows the transfer and that the trust’s terms are followed.
Transparency and fairness is important in maintaining family harmony through trust transactions. A common approach is to vest the property to one child while adjusting entitlements or distributions for the others, so that the overall value distributed to each child is equitable.
We can help you to explore succession planning options and to put structures in place that protect both the trust and your family relationships.
9. When establishing a discretionary trust, should I restrict who can be a beneficiary?
Careful consideration of who should be a beneficiary is crucial when setting up a discretionary trust. A broad range of beneficiaries, including individuals, companies, and other trusts, provides flexibility for distributions over the life of the trust. However a trustee must always remember its obligation to consider the requirements of all of the primary beneficiaries before making a distribution (see The universal obligation of a trustee: a trustee checklist from Owies v JJE Nominees Pty Ltd • Mellor Olsson Lawyers)
There are situations where particular restrictions may be beneficial:
- Family farm transfers in South Australia: Limiting beneficiaries to “relatives” can allow the trust to qualify for a stamp duty exemption under Section 71CC of the Stamp Duties Act 1923 (SA). Without this restriction, the exemption for a family farm transfer may not apply.
- Foreign persons and interstate property: Excluding foreign persons from the potential class of beneficiary may help avoid additional stamp duty or land tax in other states, such as Victoria, NSW and Queensland. In South Australia, this is generally not required.
The beneficiaries of the trust should be tailored to the trust’s intended purpose, asset types, and future planning needs. Thoughtful planning at the outset can prevent costly amendments and ensure that the trust operates as intended.
10. Does my trustee have the powers they need to run the trust effectively
Trustee powers are central to a discretionary trust’s flexibility, effectiveness and long-term success. While the exact powers depend on the trust’s purpose, there are several key trustee powers that should be considered for every trust:
- Ability to vest capital early: Consider whether the trustee should be able to distribute capital before the vesting date to meet beneficiaries’ needs, such as education, business funding, or retirement.
- Variation powers: Consider whether the deed should allow for amendments to its provisions and powers to adapt to changing laws, family circumstances or financial strategies.
- Clear distinction between income and capital: Ensure that distributions comply with the deed, supports tax planning and avoids disputes.
- Investment powers: The trustee should be empowered to manage and grow trust assets prudently.
- Beneficiary and appointor management: Consider whether the trustee needs to manage beneficiary classes and coordinate with the appointor with respect to succession of control of the trust.
- Attorney powers and banking powers: Trustees should have authority to appoint attorneys for decision-making and to meet bank or financier requirements, such as granting security or signing loan documents on behalf of the trust.
11. I don’t have a trust—do I need one?
Whether a trust is necessary depends on your goals and circumstances. Trusts can be powerful tools for asset protection, tax planning, and succession, but they are not suitable for everyone. Without a trust, you may miss opportunities to structure your assets efficiently or protect them for future generations.
It is important to speak with a qualified advisor to determine if establishing a trust is appropriate for your situation. An advisor can help assess your needs, explain the benefits and risks, and guide you with respect to the type of trust that suits your objectives. Mellor Olsson can help establish a trust tailored to your needs, with the right structure, powers, and compliance.
Final comments
A discretionary trust is designed to protect your assets, plan for succession and provide flexibility. However if your trust deed is outdated, it can quietly betray those very goals. Unreviewed trust deeds can lock in unintended control, trigger unexpected tax consequences or spark disputes among those you care about most.
Every trust has the potential to be a powerful tool, or a ticking time bomb. At Mellor Olsson, we help families and businesses ensure that their trusts work exactly as intended, giving certainty, control, and peace of mind.
Don’t leave your legacy to chance. Let us help you craft a trust that preserves your vision, protects your family and powers your future.