Challenging a Will – Removing a Trustee or Changing Terms of a Trust

challenging a willIt is often no understood that in considering a family provision claim (challenging a Will or intestate Estate), the Court can also make orders to remove a Trustee or even to make changes to the terms and conditions of a Trust created by the Will.

WHAT IS A TRUST?

A “trust” is a relationship created at the direction of an individual (the “settlor”), in which one or more persons (the “Trustee”) hold the individual’s property subject to certain duties to use and protect if for the benefit of others (the “beneficiaries”).

A “Trust” can be created during a person’s lifetime, usually by way of a Deed of Declaration of Trust, or it can be created in a person’s Will to commence when the person dies (a “Testamentary Trust“).

When a Will creates a testamentary trust the Trustee will administer the assets in the Testamentary Trust for the benefit of named beneficiaries (eg children or grandchildren).

The Will may also state that the nominated Trustee can appoint a substitue Trustee by Deed or Will.  If the Trustee fails to exercise the power of appointment or the Will does not contain such a power, then only the Court can appoint a new Trustee.

In NSW, the power of the NSW Supreme Court comes from both –

  1. The Court’s “inherent” power regarding trusts; and
  2. An Act of the NSW Parliament called the Trustee Act, 1925.

Under it’s inherent power, the Court can consider the interests and the welfare of beneficiaries when determining whether it is necessary to appoint a new Trustee in the particular circumstances of a case.

Under the Trustee Act, the Court has power to appoint a new trustee “whenever it is expedient to appoint a new trustee, and it is inexpedient difficult or impracticable” to do so without the Court’s assistance.

A Trustee may be removed for several reasons, for example, there may be some suggestion that the Trustee has misused his or her position, or is otherwise unfit to occupy that position.

In a recent case a Family Provision Claim was made on behalf of an adult disabled child against his father’s estate and the facts of the case were:

  • The father had 2 sons, one with a disability;
  • The father made a Will appointing his eldest son as both the Executor and Trustee of his Estate and gifted his estate as follow –
    • A half share of his estate to his eldest son; and
    • The remaining half share of his estate to his trustee upon a “testamentary protective trust” for his youngest son, who has the disability.
  • The trust created by the Will also stipulated that both capital and income in the protective trust could be distributed for the benefit of either the disabled son or the eldest and able bodied son at the sole discretion of the Trustee – meaning the eldest son could give moneys out of the trust to himself so the disabled son may not necessarily ever receive any benefit from the trust at all.

A Trustee has a fiduciary duty to the beneficiaries of the trust and so much always act in their best interests and must avoid conflicts of interest.

In the above case, however, the Trustee had the power to exercise his discretion to only distribute the trust assets to himself and to give nothing to his disabled brother.  Accordingly, the possibility of a conflict of interest between the Trustee and the disabled beneficiary was very high.

In this case, application was made to the Court to remove the Trustee and appoint an independent Trustee as well as amending the terms of the trust to ensure trust assets could only be used for the benefit of the disabled son.

If you would like more information on the issues raised in this article, call our Estate Planning Lawyers at Brazel Moore Lawyers on (02) 4324 7699 or why not book into one of our upcoming Challenging Wills seminars at http://brazelmoorelawyers.com.au/events/free-challenging-wills-seminar-17/