We often see Family Discretionary Trust Deeds which were set up several years (or event decades) earlier. It is often overlooked that circumstances may have changed significantly since the Trust was established and that the ultimate controller of the Trust may not be the expected person.
The case of Kniepp v Annuaka Pty Ltd last year is a reminder of the potential risks. In that case, a Discretionary Trust established in 1991 named a deceased’s first wife as the person with the power to change the Trustee of the Trust (sometimes this person is called an ‘Appointor’). Despite divorce in 1995, the first wife’s power was never dealt with or removed. 19 years after separation she attempted to exercise her power to seize control of the Trust Fund.
Although she was not successful on account of jurisdictional issue and interpretation of the specific Trust Deed in this case, the risk was real and potentially disastrous for the last family of the deceased.
The person with power to change the Trustee of a Discretionary Trust can often be forgotten about over time. It is a case of ‘out of sight, out of mind’ unless the Trust Deed is reviewed periodically. There is also a tendency to view Discretionary Trusts as ‘carbon copies’ of one another with identical functionality and governing rules.
However, the precise terms of the trust deed are critical and we recommend to all our clients that Discretionary Trust Deeds are reviewed every few years to ensure it is appropriate given the current Law and individual circumstances.