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26 June 2023

It Depends – Can a family trust distribute to its trustee?

Authored by: Scott Hay-Bartlem
In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about whether a family trust can distribute to its trustee.

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about whether a family trust can distribute to its trustee.

Video transcript

Hello. Welcome to this edition of It depends where we’re talking about, can a family trust distribute to the trustee?

Can a family trust distribute to a trustee?

Okay. So, this is your classic it depends scenario. In a family trust you have a wide range of beneficiaries and the trustee has the choice as to whom it can distribute. So, the first question is, is the trustee included in the beneficiaries in the trust deed? These are normally going to be a particular person or people. You know, family members, relatives, aunts, uncles, nephews, nieces, children, related companies and trusts. So, the first question is making sure that your trustee is included in that list of people to whom you can distribute.

Is the trustee excluded from being a beneficiary?

So, having worked out if your trustee is in the list of people we can distribute to, the second question is, are they excluded? Because most family trust deeds have a clause often buried somewhere towards the back that says you cannot distribute to certain people. So, the settlor and the children of the settlor will usually be excluded, hopefully, very important. But often trustees are also specifically excluded from being beneficiaries and often any former trustees are excluded. So, if we decided your trustee is included as a beneficiary, we need to find that exclusion clause and make sure they’re not picked up as someone who’s excluded.

Why are trustees often excluded?

We often see trust deeds where trustees and former trustees are excluded. In fact, I’ve got quite a few on my desk at the moment. The reasons are there’s quite a few. Typically, if you’ve got assets in New South Wales, you have a stamp duty issue if you change the trustee and the trustee and any former trustees aren’t excluded. So, a New South Wales deed will exclude them. In Queensland, if we have a company as trustee and we have land owned in that trust, then we have corporate trustee duty and possibly landholder duty if we’re transferring shares. So, that’s a couple of reasons. It’s actually very common. You need to check because we’ve got a few where people have been distributing to trustees and some the ATO picked up to make sure we can. Now, there’s a range of other complications in distributing to trustees of trusts, including some reimbursement agreement issues, some asset protection issues and a range of others. So, if you’ve got any questions about distributing from a family trust to the trustee, please contact a member of our team. Thanks for watching this version of It depends.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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Scott-Hay-Bartlem
Scott Hay-Bartlem
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