Importance of reviewing your trust deed regularly

Client A and B had a Family Trust. For 5 years, the Trust had been distributing income from the Trust to both Clients A and B equally. Clients A and B came to us for their Estate Planning. The clients explained that they had a family trust and that distributions were being made equally to them. We asked to see their Trust Deed so that we could ensure their Family Trust aligned with their Estate Plan.

Clients A and B could not locate their Trust Deed and asked if it was really necessary. We advised them it is crucial that their Trust Deed aligns with their Estate Plan and without seeing the Deed, we cannot advise what would happen to their assets upon their passing.

Clients A and B spent a large amount of time trying to locate their Trust Deed. Eventually they were able to find it. Upon reviewing the Trust Deed, we identified that Client A was the sole beneficiary of the Trust. However, Client B was not a beneficiary. This meant that the Trust could not actually distribute the Trust income to Client B, like it had been doing.

Clients A and B were both confused and were of the understanding that as the Trust was a Discretionary Trust, the Trustee had discretion as to who to distribute the income to. We advised the clients that the Trustee of the Discretionary Trust does have discretion as to who the income is distributed to, however it can only be distributed to beneficiaries named in the Trust as beneficiaries. Client B was not named as a beneficiary, they were named as the Trustee only.

We advised Clients A & B of the steps they needed to take to remedy the incorrect distribution of Trust income and a strategy to change the Trust Deed so that going forward, the Trust could distribute to both Clients A and B.

Clients A & B were very lucky that no fines or penalties had been imposed as yet for the non-compliance of the Trust and incorrect distributions being made. Had this continued, the clients could have found themselves facing large legal and financial consequences.

This is a perfect example of why ensuring you know where your Trust Deed is, is so important, along with having your Trust Deed reviewed regularly to ensure the Trust is transacting in accordance with the Trust Terms.