Tuesday, June 21, 2022

Do beneficiaries need to believe in love** when concerned about trustee distributions?

Many previous posts have considered the overriding duty of trustees of trusts - and the fact that a trustee must exercise its discretion in good faith, upon real and genuine consideration and for a proper purpose.

Again with 30 June rapidly approaching, the decision in Callus v KB Investments - [2020] VCC 135 provides a useful example of the approach the courts will take in this area.

Relevantly the factual matrix involved:
  1. A family trust set up by the parents of the family (on apparently standard terms);
  2. Over time, all adult children benefited in various ways from the assets of the trust;
  3. Some years after the trust was established, a new trustee company was appointed, with one of the adult sons the sole director of the company;
  4. Around 3 years later the trust distributed one of the properties of the trust to the sole director in his personal name;
  5. On discovering the transfer some years later, a sister brought proceedings to unwind the transaction and have the trustee replaced.
In letting the transfer stand, however also removing the trustee, the court confirmed:
  1. While the trustee did not give any reasons for its decision to transfer the asset, it was not required to under the trust deed.
  2. In any event, no record was provided of the decision – and even if there had been a document disclosing the reasons produced, the trust deed provided that the trustee was not bound to disclose any document setting out any reasons for any particular exercise of the trustee’s power.
  3. The trustee was entitled to transfer the property to the son under the terms of the trust deed, which provided that the trustee may in its absolute discretion transfer any property ‘to any beneficiary for his own use and benefit in such manner as it shall think fit’ - with specific provision also confirming the trustee did not have any obligation ‘to consider competing claims of beneficiaries’.
  4. The trustee also had no obligation to tell other potential beneficiaries of the trust of the transfer.
  5. In contrast, due to the clear hostility between the son and one of his sisters (their relationship had deteriorated significantly following the transfer) the court was of the view that the trustee should be replaced, applying the rules explored in many previous posts centred on the test that 'the only guide is the welfare of the beneficiaries, and a trustee may be removed if the court is satisfied that its continuance in office would be detrimental to their interests'.
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** For the trainspotters, the title of today's post is riffed from the Human League song 'Love Action (I believe in love)'.

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