TRUST FUNDS: Getting your share faster

WORDS: Brendan Nyst Dispute Resolution And litigation, Will & Estates, Defamation, Nyst Legal www.nystlegal.com.au PHOTOGRAPHY Supplied

A: This is a common question, particularly in relation to testamentary trusts. In my experience, many people, when deciding on the terms of their final will and testament, choose to set up testamentary trusts that effectively ‘drip-feed’ the bequeathed assets to their children and other loved ones over an extended period. Structuring trust distributions in this manner can be quite attractive to a cautious testator keen to ensure their beneficiaries don’t injudiciously squander their inheritance in one fell swoop. However, from the recipient’s perspective, not being able to access their inheritance promptly can be frustrating and, in some cases, financially distressing. For this reason, I often have beneficiaries approach me to inquire whether there is any way they can sidestep the terms of the trust and access their share immediately.

The answer is potentially yes, subject to certain requirements.

Notwithstanding the terms of any given trust, it is possible for the beneficiaries to terminate it to enable them to immediately receive their share of the assets. Provided the beneficiaries have an absolute indefeasible vested interest in the trust assets, and there is unanimous consent among them to terminate the trust, the beneficiaries can bring it to an end. Indeed, even where there is not unanimous agreement among the beneficiaries, a beneficiary may be entitled to have their interest in the trust property paid out to them, provided that doing so does not prejudice the interests of the other beneficiaries.

From the perspective of the nominated trustee of the trust, the question of whether the trustee should, or is entitled to, pay out a beneficiary’s share of trust property upon request requires careful consideration. If there is a request for one or more beneficiaries to receive their entitlements immediately, it is open to the trustee to apply to the courts for directions regarding whether they are legally entitled to pay out the beneficiary. The Trusts Act 1973 provides that trustees can seek advice from a court regarding any action they may be considering in relation to the trust, including the prospective termination of the trust or early payout to a particular beneficiary. Seeking this direction allows the trustee to ensure that their proposed actions are lawful and that they will not face personal liability for their decisions.

Ultimately, whether the court will allow the trustee to terminate the trust depends on the specific facts of the matter at hand and the wording of the trust. Therefore, for those testators keen to ensure their final wishes are faithfully upheld, it is important that their legal representative gives very close consideration to the wording of their will.

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