Discretionary trusts can be a great way for assets to be distributed to Beneficiaries without the same tax consequences as the ordinary distribution of income. However, acting as a Trustee can be a complicated task, and many trustees may not know the process to follow if any details of a discretionary trust have to be changed.
If you need to change the beneficiaries who will be paid out from the trust, below are some helpful tips to get started.
Check the Trust Deed
The Trust Deed should always be your first port of call if there are any terms or processes that you are unsure of. The Trust Deed will include details of how the Trust can be altered in relation to the Beneficiaries Of A Discretionary Trust, and this of course includes how they can be removed or added. After carefully reviewing the Trust Deed, you should have a pretty clear idea of what to do in the even that you want to change the beneficiaries. As this Trust is discretionary in nature, it’s possible you may not have to do anything.
Consider why you want to change the Beneficiaries of the Trust
Depending on what course of action you want to take in changing the Beneficiaries Of A Discretionary Trust, you may not have to do much at all. For example, if there is another family member you want to add, if the Trust Deed says that ‘all family members’ are beneficiaries, then they are already included. A lot of Trust Deeds contain a broad definition of what constitutes a ‘beneficiary’, so that beneficiaries can be easily included or excluded at the discretion of the Trustee. Further, if you do not wish to distribute income or assets to one of the beneficiaries, you can do this, as distributing income is at the discretion of the Trustee.
Be mindful however, that in your duties as the Trustee, you have to act in good faith and for the benefit of the Beneficiaries.
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 to vary the terms of the Trust. 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 that you will have discretionary powers to alter the terms of the Trust as the Trustee.
Have your Trust Documents Checked by a Lawyer
If you do not wish to make a Deed of Variation to officially change the terms of the Trust, you should at least have a lawyer look over the Trust Deed to 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. Although Trustees have the discretion to determine distribution amounts, they are still obligated to comply with the terms set out in the Trust Deed.
Being the Trustee of a Discretionary Trust means just that – that you can distribute the Trust Property to the Beneficiaries at your discretion. 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.
Not sure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.