The Victorian Court of Appeal’s decision in Owies v JJE Nominees Pty Ltd [2022] VSCA 142 (Owies) is a warning to trustees of discretionary family trusts. Even where a trust deed grants “absolute and uncontrolled” discretion to a trustee in deciding how to make distributions between beneficiaries, a trustee who fails to give “real and genuine” consideration to all beneficiaries risks having distributions set aside and/or being removed as trustee altogether.
The case
The dispute concerned the control of a family trust established by parents Dr John and Dr Eva Owies, which held more than $23 million in assets. John, Eva and their three children were named as primary beneficiaries, with JJE Nominees Pty Ltd as the corporate trustee (Trustee).
Between 2011 and 2018, the Trustee distributed all the trust’s net income in a repeating pattern: 40 per cent to John, 40 per cent to one son, and 20 per cent to Eva. In 2019, all income was distributed to John, who was by then aged 96 and in full-time residential care with no need for the income.
The two excluded children, later joined by the son who was cut from the distribution list in 2019, challenged the distributions, and the trial judge found that the Trustee had breached its duties despite the trust deed conferring “absolute and uncontrolled” discretion. The Court of Appeal upheld that conclusion, ordered the removal of the Trustee and directed the appointment of an independent replacement.
The Court of Appeal found that the Trustee had not given “real and genuine” consideration to the children.
The Trustee first failed to inform itself about the circumstances of all beneficiaries. One of the children had significant medical costs and was unable to manage full-time work, circumstances the court considered gave rise to a strong claim on the Trustee’s discretion.
Second, the repetition of the same distribution formula over consecutive years without any evidence of a fresh decision each year pointed to a lack of due consideration.
Further, the 2019 distribution of 100 per cent of the income to John, a 96-year-old in residential care with no need for the income, was deemed abnormal.
What this means
For farming families with discretionary trust structures, independent advice is essential to reduce the risk of costly litigation.
Thynne + Macartney’s Agriculture team is a trusted adviser to farming families on asset management.
This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.
