How Can I Change The Beneficiaries of a Discretionary Trust?
Are you the trustee of a discretionary trust and want to make some changes? Find out how to change the beneficiaries of a discretionary trust here.
Discretionary trusts can be a great way for you to distribute assets to Beneficiaries without the same tax consequences as the ordinary distribution of income. However, acting as a Trustee can be a complicated task. Further, many trustees may not know the process to follow if details of a discretionary trust have to be changed. If you need to change the beneficiaries of a discretionary trust, this is how you can do it.
How to change the beneficiaries of a discretionary trust
1. Check the Trust Deed
The Trust Deed should always be your first port of call. The Trust Deed will explain how the Trust can be altered in relation to the beneficiaries of a discretionary trust. This of course includes how they can be added or removed. After carefully reviewing the Trust Deed, you should have a pretty clear idea of what to do. As this trust is discretionary in nature, it’s possible you may not have to do anything.
2. Consider why you want to change the Beneficiaries of the Trust
Depending on what course of action you want to take to change beneficiaries, you may not have to do much at all. For example, if there is another family member you want to add, the Trust Deed may say that ‘all family members’ are beneficiaries. This means they are already included. A lot of Trust Deeds contain a broad definition of what constitutes a ‘beneficiary’. This is so that beneficiaries can be easily included or excluded at the discretion of the Trustee. Further, you can exclude beneficiaries as distributing income is at the discretion of the Trustee.
Be mindful however, that as the Trustee, you have to act in good faith and for the benefit of the Beneficiaries.
3. Execute a Deed of Variation if necessary
If you wish to make a more formal change, you will need to execute a Deed of Variation. The Deed of Variation must follow the instructions provided in the Trust Deed. It is also worth noting that because it is a discretionary trust, it is likely you will have discretionary powers to alter the Trust.
4. Have your trust documents checked by a lawyer
If you don’t want to use a Deed of Variation to change the terms of the Trust, you should at least have a lawyer look over the Trust Deed. This will help ensure that you’re complying with all of your obligations. If you have decided to vary the Trust by Deed, then have a lawyer cross-check the Deed of Variation with the Trust Deed. Trustees do have the discretion to determine distribution amounts. However, they still have to comply with the terms set out in the Trust Deed.
Being the Trustee of a Discretionary Trust means that you can distribute the Trust Property to the Beneficiaries at your discretion. This also carries with it the right to change the beneficiaries of a discretionary trust. However, it is important to remember that this discretion is not absolute – so always ensure that the changes you make to the Trust are within your rights, and still comply with your obligations.
Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is an admitted solicitor in the Supreme Court of NSW. She's interested in how technology can help shape the future legal landscape.