How to Remove a Beneficiary From a Trust

To remove a beneficiary from a trust in Australia, you start with the trust deed: it sets out whether the trustee can exclude a beneficiary by resolution, or whether you need a formal Deed of Variation to amend the deed. The method, and the legal consequences, depend heavily on your trust type and how the deed was drafted.

This tends to be one of those jobs people put off until it becomes urgent. A divorce, a family falling out, a company restructure, or a Centrelink eligibility question lands on your desk and suddenly the trust beneficiary list matters more than it ever did. The good news is that for most discretionary (family) trusts, the process is more straightforward than people expect. The not-so-good news: get it wrong and you can trigger a tax bill you weren’t expecting, or hand the removed beneficiary grounds to challenge you in court.

What is a trust beneficiary?

A trust beneficiary is a person or entity that is entitled to benefit from the assets held in a trust. In a family (discretionary) trust, beneficiaries do not have a fixed entitlement to a set share of the trust assets. Instead, the trustee has discretion to decide who receives a distribution, when, and how much. Being a named beneficiary doesn’t guarantee you’ll ever receive anything.

This is a common source of confusion. A trust beneficiary is not the same as a Will beneficiary, who has a defined entitlement on the death of the testator. In a discretionary trust, the trustee controls distributions entirely, which is precisely what makes removing a beneficiary a more nuanced question than most people assume.

Beneficiaries can be individuals, companies, or even other trusts. They can be minors, people who lack legal capacity, or residents of other countries (though foreign beneficiaries in a trust that holds land can create significant duty problems; more on that below).

Do you actually need to formally remove a beneficiary?

This is the question most posts skip, and it’s the most useful one to ask first.

In a discretionary trust, the trustee already has full discretion over who receives distributions. If you simply want to stop a particular beneficiary from receiving income or capital going forward, you may not need to remove them from the deed at all. You just don’t distribute to them. The trust deed gives you that power without requiring any formal amendment.

Formal removal becomes necessary in these situations:

• You want a permanent, documented record that the person is excluded (common in divorce settlements or business restructures).
• A bank or lender requires the beneficiary to be formally removed before approving finance (lenders sometimes require this to limit potential claims against trust assets).
• The beneficiary is claiming Centrelink benefits and the government requires evidence they have no entitlement to trust distributions.
• You want to reduce the pool of potential beneficiaries to make the trust’s ownership structure cleaner for tax or succession planning purposes.

If none of these apply, a trustee resolution not to distribute is simpler, cheaper, and carries less tax risk than a deed amendment. It’s worth having this conversation with a lawyer before you start paperwork.

How to remove a beneficiary from a trust

Step 1: Read the trust deed

The trust deed is the governing document for everything. Before you do anything, locate the section dealing with variation powers and beneficiary changes. This tells you what method is available and what formalities are required.

Older trust deeds in particular can be poorly drafted on this point. Some deeds have a clear power to remove named beneficiaries by trustee resolution. Others only allow variation via a formal deed. Some don’t address beneficiary removal at all, which creates a problem (see the FAQ below on what to do in that case).

Read the deed carefully before assuming you know what’s possible. What the deed says controls the process; what you think is reasonable does not.

Step 2: Choose the right removal method

There are three main ways to remove a beneficiary from a trust, each with different formality and legal effect.

Trustee resolution (simplest): If the trust deed gives the trustee a specific power to exclude a beneficiary by resolution, this is the most straightforward path. The trustee passes a resolution declaring the person is no longer a beneficiary. No deed amendment is required. This method works well when the deed has a clear exclusion power and the removal is intended to be effective immediately without creating a permanent formal record.

Deed of Variation (most common): A Variation of Discretionary Trust formally amends the original deed to update the beneficiary provisions. It becomes a permanent part of the trust’s legal documentation. Use this when you want a documented amendment that third parties (banks, government bodies, or future trustees) can rely on. The deed of variation must be executed in accordance with the requirements set out in the original trust deed.

Deed of Release (most permanent): A deed of release is used when the beneficiary themselves agrees to and signs off on their exclusion. It creates an irrevocable record that the beneficiary has relinquished their interest. This is the preferred mechanism in divorce or separation proceedings, or when a beneficiary wants to demonstrate to Centrelink that they have permanently excluded themselves from any future distributions. Because it involves the departing beneficiary as a signing party, it’s harder to challenge later.

Step 3: Get legal advice before you execute

This isn’t a generic disclaimer. Removing a beneficiary from a trust can trigger stamp duty, capital gains tax, or resettlement risk (see the tax section below). These consequences aren’t obvious from the face of the documents. A Lawpath lawyer can review your trust deed, confirm the correct method, and check for any tax or duty consequences before you sign anything.

Step 4: Execute the document correctly

Execution requirements vary by state and by the specific requirements in your trust deed. In most cases, a Deed of Variation must be signed by the trustee and the appointor. It does not need to be witnessed by a Justice of the Peace, but it must meet the standard requirements for executing a deed in your state.

Keep a signed copy with your trust’s records. If your trust deed requires stamp duty on variations (some older deeds and some states require this), pay it within the required timeframe.

What tax and duty consequences can removing a beneficiary trigger?

This is where most people get into trouble. The paperwork of removing a beneficiary is straightforward. The tax side is not.

Resettlement risk

The most serious risk. If the change to the trust is so substantial that it causes the trust to effectively cease and a new trust to arise, the ATO treats this as a “resettlement.” The consequences are serious: CGT can be triggered on all trust assets, income tax consequences may arise, and any carried-forward tax losses or franking credits can be forfeited.

The ATO’s guidance in Taxation Determination TD 2012/21 sets out when an amendment causes a resettlement. In short: a resettlement occurs when the change causes the existing trust to terminate and a new trust to arise under trust law, or when the change creates a new trust over specific property. Removing a beneficiary alone usually does not cause a resettlement. But if the removal is accompanied by other changes to the trust deed, or if the removed beneficiary was a default beneficiary (a “taker in default”) and no comparable substitute is appointed, the risk increases.

State stamp duty

State duty obligations vary significantly. In most states, a deed of variation is dutiable only if it involves a change in the beneficial ownership of trust property. Removing a beneficiary where no trust property is actually transferred typically does not attract duty. But the exceptions matter.

In Western Australia, if the removed beneficiary was a “taker in default” and the trust owns dutiable property (such as real estate), the removal can be treated as a deemed disposal of their proportional interest in that property. Duty may then become payable by the remaining beneficiaries on the interest they effectively acquire. This is a well-documented trap for trusts that hold land in WA.

If your trust owns real property, or if you are in WA, have a lawyer check duty implications before you proceed.

CGT and past entitlements

Removing a beneficiary does not itself trigger a CGT event. The beneficiary loses their right to future distributions, but their interest is not “transferred” in the CGT sense when they are simply excluded from the class.

One point that often surprises people: past entitlements survive removal. If a beneficiary was owed a distribution before the effective date of removal, they retain the right to that distribution. The removal deed cannot reach back in time to extinguish entitlements that had already accrued. If existing distribution entitlements are in dispute, sort that out before (not after) executing the removal.

Permanent removal vs temporary exclusion: what’s the difference?

Not all removals are meant to be forever. Centrelink compliance is a common example where someone needs to demonstrate they won’t receive trust distributions while they receive government benefits, but may want to be reinstated as a beneficiary later.

A permanent removal via a Deed of Release (signed by the beneficiary) is irrevocable. Once done, it cannot be undone. This is the right tool for post-divorce exclusions where you want to permanently close the door.

A temporary exclusion via trustee resolution or a Deed of Variation can be drafted to allow reappointment later. If you use this approach for Centrelink purposes, the deed must not bar the person from ever being reinstated as a beneficiary. The wording matters. Make sure the drafting explicitly preserves the ability to reappoint, rather than permanently excluding them by default.

Also check: before removing beneficiaries, make sure at least two natural-person beneficiaries remain. Removing too many people from the beneficiary class can create problems with the trust’s validity and future distribution flexibility.

What we see in Lawpath consultations

Across hundreds of trust consultations every year, our lawyers see a few patterns come up repeatedly. These are the issues that catch people out most often.

Centrelink situations are more common than expected. People assume that being listed as a discretionary beneficiary doesn’t affect government benefits because the trustee hasn’t made a distribution to them. Centrelink takes a different view: potential access to trust funds can affect eligibility. The fix is either a formal deed of exclusion or a Deed of Release, depending on whether you want the door left open for later. Our advisers regularly work through which instrument is appropriate and how to word the deed to satisfy the relevant agency.

Divorce and separation is the other common trigger. When a marriage ends, excluding a former spouse from the family trust is almost always part of the settlement. The cleanest mechanism is a Deed of Release, because it involves the departing spouse signing off and creates no ambiguity. A deed of variation can be challenged more easily on the grounds that the trustee acted improperly, especially if the exclusion was done unilaterally and the former spouse disputes it.

Company restructures often surface a quiet beneficiary problem. When a company that is a trust beneficiary is being repurposed (say, converted from an operating entity to a pure holding company), the question of whether it should remain a beneficiary often comes up for the first time. In most cases, it doesn’t need to be removed for the restructure to work. The trust deed’s existing mechanism handles it: a trustee resolution and variation deed are sufficient. But the decision of whether to remove or retain the company as a beneficiary has real tax and distribution consequences, and those should be thought through before the restructure is finalised.

Watch foreign beneficiaries if the trust holds land. If your trust owns or intends to own real property in Australia, having a foreign person as a beneficiary (including overseas relatives listed when the trust was first set up) can trigger penalty stamp duty in some states. The fix, if you haven’t already purchased the land, is to remove the foreign beneficiaries before settlement. After the purchase, the options become more limited and potentially more expensive. This is something our lawyers flag consistently in trust setup and variation consultations.

Can a trustee remove a beneficiary without their consent?

Often, yes. But there are limits, and those limits matter.

If the trust deed gives the trustee a specific power to remove beneficiaries, the trustee can exercise that power without the beneficiary’s agreement. This is a standard feature of many modern discretionary trust deeds. The trustee does not need to explain the decision to the person being removed.

However, the trustee must act in good faith and within the scope of the power granted. Courts have scrutinised trust deeds carefully on this point. Australian case law confirms that a trustee’s removal of a beneficiary can be challenged if the trustee had an improper purpose, failed to give genuine consideration to exercising the power, or used the wrong power (for example, using a general beneficiary removal power to remove a specifically named beneficiary when the deed only permitted removal of general class members).

A trustee can also face a discovery application if the removed beneficiary suspects the removal was for an improper reason. Courts have ordered trustees to produce documents explaining the basis for the decision, even where no distributions had ever been made to the removed beneficiary. Good record-keeping and a clear paper trail matter.

Can a beneficiary challenge their removal from a trust?

Yes, and it happens. A beneficiary who believes their removal was invalid has a few avenues.

They can argue the trustee acted outside the powers granted by the trust deed. If the deed only allowed removal of general class beneficiaries but the trustee removed a named beneficiary, the exercise of that power may be invalid.

They can argue the trustee acted in bad faith or for an improper purpose. This requires showing the trustee had an ulterior motive, not just that the beneficiary disagrees with the decision.

They can apply for court orders if the trustee’s actions constitute a breach of trust. The Supreme Court of each state has jurisdiction over trust matters and can order the trustee to provide documents, reinstate the beneficiary, or compensate for loss.

The best protection for a trustee is a well-documented decision-making process, a properly drafted variation deed that follows the trust deed’s requirements exactly, and legal advice obtained before the removal.

Frequently asked questions

Can a beneficiary of a trust be changed in Australia?

Yes. In a discretionary trust, beneficiaries can be added or removed by following the procedure in the trust deed. The most common method is a Deed of Variation (also called a Deed of Amendment), which formally updates the original deed. Some deeds also allow changes via a trustee resolution without a deed amendment. Always check your specific deed before proceeding.

What is the difference between a Deed of Variation and a Deed of Release?

A Deed of Variation is a trustee-initiated document that formally amends the trust deed. A Deed of Release is signed by the beneficiary themselves and permanently confirms they have given up their interest. A Deed of Release is irrevocable and is typically used in divorce settlements or Centrelink exclusions where permanent exclusion needs to be proven to a third party.

Does removing a beneficiary trigger CGT or stamp duty?

Removing a beneficiary does not usually trigger a direct CGT event. However, it can contribute to “resettlement” risk if combined with other significant trust changes. State stamp duty may apply in some circumstances, particularly in WA where removing a taker-in-default beneficiary from a trust that holds dutiable property can trigger a deemed disposal and duty liability. Get tax advice specific to your state before proceeding.

Can a trustee remove a beneficiary without their knowledge?

Yes, if the trust deed gives the trustee that power. The trustee does not have to notify or obtain consent from the beneficiary being removed. However, the removal must be in good faith and within the scope of the power granted. A beneficiary who discovers they have been removed can apply to court to investigate the trustee’s reasons.

What happens if my trust deed has no power to remove beneficiaries?

If the deed includes a general variation power, you may be able to use that to amend the beneficiary provisions, but you need legal advice first to confirm it covers this. If the deed contains no useful power, you may need to apply to court for a variation order. Some older trust deeds are silent on this, which is a drafting problem worth addressing before you actually need to make changes.

Can you temporarily remove a beneficiary from a trust?

Yes. A Deed of Variation or trustee resolution can exclude a beneficiary without permanently barring their future reappointment, provided the wording explicitly preserves that option. This is used in Centrelink situations where the person needs to demonstrate exclusion from trust distributions while on benefits, but may return to the trust later. A Deed of Release, by contrast, is irrevocable and should not be used for temporary exclusions.

Does a removed beneficiary lose their entitlements from before the removal date?

No. Entitlements that accrued before the removal date are not extinguished by the removal. If the trustee had already resolved to distribute funds to a beneficiary before they were removed from the trust, that person retains their right to that distribution. Removal only affects future entitlements.

How much does it cost to remove a beneficiary from a trust in Australia?

Using a Lawpath Variation of Discretionary Trust template is the most cost-effective starting point for straightforward changes. For more complex situations involving tax advice, state duty checks, or contentious removals, a lawyer’s review adds to the cost but is strongly recommended to avoid triggering an unintended tax liability that would far exceed the advisory fee.

Sorting out a trust beneficiary change is not the kind of thing you want to get wrong and fix later. A Lawpath lawyer can review your deed, confirm the right approach, and prepare the variation deed in one engagement. You’ll know it’s done correctly, and the paper trail will hold up if anyone ever questions the process.

Ready to make the change? Use Lawpath’s Variation of Discretionary Trust template for a straightforward amendment, or speak with a Lawpath estate lawyer if your situation involves tax considerations, a dispute, or an older trust deed that needs careful handling.