Family Trust Update – Exclude a Beneficiary

How to remove a Beneficiary from a Family Trust

Remove a Centrelink person from your Family Trust

Centrelink may not be happy that a person on Centrelink may potentially get a distribution from someone else’s Family Trust. To pacify Centrelink this Deed of Variation agrees that the current Trustee and Appointor, and future Trustees and Appointors, will never distribute to the person on Centrelink in the future.

The Deed of Variation to exclude the beneficiary helps prove that the person on Centrelink will never get anything out of the trust.

Ex-spouse still in your Family Trust? Remove your ex-spouse from your Family Trust

The Family Law property settlement is over. The dust has settled. But you find that your ex is still a potential beneficiary in ‘your’ Family Trust. This Deed of Variation confirms the:

• current Trustee and Appointors, and
• future Trustees and Appointors

will never distribute to your ‘ex’.

Can you remove a Beneficiary from your Family Trust?

All Australian trusts must have three things:

1. Trust Assets, e.g. cash, shares, property, intellectual property
2. Trustee – holds only the ‘legal’ title of the Trust Assets – owner only in name
3. Beneficiaries – true or equitable owners of the Trust Assets

You control the trust and no longer want a certain beneficiary to ever get any income or capital out of your Family Trust. You are excluding this person. This Deed of Exclusion is for that purpose.

Fettering the Trustee’s Discretionary Power to exclude a Beneficiary in your Family Trust

The trustee of a family trust, working under the direction of the appointment, can distribute the funds to any of the beneficiaries. However, this Deed of Variation ‘fetters’ that discretion. It is no longer possible to distribute to the Excluded Beneficiary. 

To increase the likelihood of this Deed of Variation applying, we also seek to amend the Family Trust Deed (in the same Deed of Variation) in three additional ways. We require you to confirm:

1. Your current Appointors (controllers) and change them (if required)
2. Your Backup Appointors confirm or change them (as required)
3. Trustee, you confirm the current Trustees, or you can change the Trustee

Family Trust Update – Exclude a Beneficiary from a Family Trust

The Family Trust Update to get rid of unwanted Beneficiaries does five things:

1. excludes someone as a beneficiary of a Family Trust
2. confirms or changes your Trustees
3. confirms or changes the Appointors and Guardians
4. confirms or changes your Back-up Appointors (these are the people that control the Family Trust after you die)
5. fully updates your Trust Deed (rules)

Firstly, remove a Beneficiary from a Family Trust 

Firstly and primarily, the Deed of Variation seeks to remove a person from your Family Trust. This is so that they can no longer get anything from your Family Trust.

While the Appointor is more independent and powerful, the trustee of your Family Trust has a duty to act responsibly and in good faith: Gisborne v Gisborne (1877) 2 App Cas 300. The trustee must take care that it does not breach its duties. Or the court can wind back the removal of the Beneficiary: Campbell v T L Clacher No 2  [2019] QSC 218.  See, for example, Mandie v Memart Nominees [2020] VSCA 281.

Secondly, you can change the Trustee of your Family Trust

As well as excluding some people, you may wish to change the Trustee of your Family Trust. This is because, for example, you may no longer like the Trustee.

Check with your Accountant to see whether there is any transfer (stamp) when you update the Trustee of a Family Trust, especially if you are in New South Wales.

Thirdly, confirm or update the Appointor (controller)

The Appointor controls the trust. It can hire and fire the Trustee. Appointors change for many reasons. People may wish to retire as an Appointor. Perhaps you would like to add your new spouse as an additional Appointor. As well as excluding a Beneficiariy, this Deed of Variation:

• • allows the current Appointors and Guardians to retire or be removed, if dead; and
  • confirms those current Appointors who remain as Appointors appoint any new Appointors

Fourthly, confirm or change your Backup Appointors

After the Appointors are all dead, the Backup Appointors take control of your Family Trust.

This Deed of Variation and doing the above allow you to confirm or change who you wish to control the Family Trust after you die.

Fifthly, the Family Trust is updated for the latest taxation and legal requirements – as well as removing the Beneficiary

Finally, the Family Trust Update does the above four things and also updates and improves your Family Trust rules.

Does the Family Trust deed allow you to Remove a Beneficiary?

All trust deeds are different. Read your trust deed, as well as any amending deeds. Ensure that this Deed of Variation is authorised and allowed by the current Family Trust Deed. Legal Consolidated does not give advice on this.

This Deed of Variation to get rid of a Beneficiary in a Family Trust assumes:

• that the Appointor, Guardian, Principal, Protector, or similar person holding power (Controller) has the power to do so.
  • See Mandie v Memart Nominees Pty Ltd [2020] VSCA 281 and Jordan v Goldspring (No 2) [2021] NSWSC 215.
• that no other consent is required from anyone to update the Family Trust, E.g. the family court, if you are divorcing, has ‘given’ you sole control of your Family Trust.
• the trustee consents to the Deed of Variation. The Trustee signs both the Deed of Variation and the minutes.
• the current Appointors consent to the Deed of Variation. The current Appointors sign the Deed of Variation and the minutes.
• the Family Trust deed allows these changes, or you have a Court order allowing you to do so.
• it is morally correct and supported in the best interests of the Family Trust that the person be excluded as a Beneficiary.
  • See Campbell v T L Clacher No 2 Pty Ltd & Ors [2019] QSC 218.
• The Trustee has no ulterior or improper purpose.
  • See Curwen v Vanbreck Pty Ltd [2008] VSC 338, [71].
• each party signing the Deed of Variation is of sound mind and has a doctor’s certificate to confirm this (which is kept with the Deed of Variation).
• each party signing the Deed of Variation is doing so with full knowledge without any duress or pressure from family members or other people.

Check with your accountant and financial planner to ensure you comply with the above.

To learn about how a Family Trust operates, watch this free training course:

1. Lainson v Lainson [1854] EngR 872
2. Tompkins (1931) 44 CLR 546; [1931] HCA 8
3. Wells [1930] NSWStRp 19; (1930) 30 SR (NSW) 150
4. Dougharty [1935] VicLawRp 39; [1935] VLR 333
5. Flower’s Settlement [1957] 1 WLR 401
6. Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
7. Dawson’s Settlement [1966] 1 WLR 1456
8. Buckle [1998] HCA 4; (1998) 192 CLR 226
9. Breckler (1999) 197 CLR 83; [1999] HCA 28
10. Cachia [2000] FCA 161
11. Hamersley v Newton (2005) 30 WAR 568; [2005] WASC 221
12. Aon (2009) 239 CLR 175
13. Karger v Paul [1984] VicRp 13; [1984] VR 161
14. Wareham v Marsella [2020] VSCA 92