Trust disputes

Trust litigation

Navigate your way through a trust dispute

A trust dispute can be complex and difficult to navigate. As trusts are used frequently for a variety of purposes in Australia, trust disputes can be very common.

Trust disputes can arise for a number of reasons, and when they do, it is important to seek legal advice.

Whether you’re a trustee, trustor, or beneficiary of a trust, our trust dispute lawyers at Gibbs Wright Litigation Lawyers can help you.

Definitions

What is a trust

A trust is a way to control the distribution of property and assets, including money. A trust can ensure that assets are distributed under specific circumstances to specific beneficiaries.

Due to the tax and inheritance benefits associated with trust structures, they are frequently used in Australia.

Fundamentally, a trust is a fiduciary relationship between three separate parties:

1. The trustor

The trustor is the person who creates the trust and puts their property into it. The trustor allows the trustee to hold a legal or equitable interest in property, not for the benefit of the trustee but the beneficiary.

2. The trustee

The trustee of a trust is the person who holds and controls the property inside the trust for the beneficiary. The trustee’s duty is to maintain the trust and they have onerous duties to abide by the rules and terms of the trust deed.

A trust deed instructs how the trust assets can be used, and the trustee is legally bound to carry out those instructions. The assets may only be used according to these instructions and for the nominated beneficiaries.

If a trustee is found to be misusing assets they may be removed and subjected to legal action.

The decision to act as a trustee should not be taken lightly.

3. The beneficiary

A beneficiary of a trust is a person or entity for whose benefit the property is held. The beneficiary can receive the property in many ways. For example, they can receive the property outright, as a percentage incrementally over time, or as payment for expenses over the beneficiary’s lifetime.

How the trust assets are disbursed depends on the reason(s) for the trust.

Trust structures

Types of trusts

There are various forms of trusts, including:

A fixed trust is one of the most well-known types of trust. In a fixed trust, each beneficiary is entitled to a fixed proportion of the capital and income of the trust each year.

The trustee is bound to distribute the assets to the beneficiaries according to these fixed amounts and they are not required to exercise discretion since each beneficiary is automatically entitled to their fixed share.

Why do people use fixed trusts?

As the share entitlement of this type of trust is predetermined and fixed, it often means that there is less conflict amongst the beneficiaries of the trust.

A unit trust is a trust that is divided into units for the beneficiaries. Each beneficiary of the trust holds a certain number of “units” and they are entitled to the income and capital of the fund proportional to the number of units they hold.

The beneficiaries in a unit trust are often referred to as unit-holders and they are able to sell their units in the trust to interested buyers.

Why do people use unit trusts?

Unit trusts are often used by unrelated parties to co-own assets. Beneficiaries each have a fixed interest in the trust’s property. There are also tax and asset protection advantages for unit trusts.

A charitable trust is a trust registered for a charitable purpose, such as advancing health, education, culture or human rights. There are no nominated beneficiaries and the trust must fund the charitable purpose stated. The trust must be not-for-profit, have a charitable purpose that is for the public benefit, and must not be a person, political party or government entity.

Why do people use charitable trusts?

Charitable trusts are often used for tax concessions. Registered trusts can for example, apply for income tax and GST exemptions, as well as deductible gift recipient status, and can receive Commonwealth grants. Charitable trust status also helps garner public confidence and donations.

In discretionary trusts, the trustee has greater control over the way the assets and income of the trust are distributed to the beneficiaries. Unlike fixed trusts, the beneficiaries do not have any fixed interests or entitlements to the property or income of the trust; rather, their entitlement is at the discretion of the trustee. Trustees are also not required to be transparent about the reasons for the allocation of trust assets.

Why do people use discretionary family trusts?

Discretionary trusts are usually used for their business advantages. For example, a person can hold their assets without being the legal owner of the property. As such, in instances where a beneficiary may be pursued by a creditor, becomes bankrupt, or is sued personally, the assets in the trust are protected because they are the property of the trustee not the beneficiary.

Special disability trusts are often set up by family members of a person affected by a disability. The aim is to provide a way for that person to be looked after if the family members die.

Assets are left in a trust to fund the person’s ongoing medical, care and accommodation expenses. The trust should not affect the person’s entitlement to a disability support pension.

A testamentary trust is created by a will. The aim is to provide a greater level of control over how assets are distributed to beneficiaries. The trust can provide an entire estate, a specific asset or a specific portion of an estate to a beneficiary.

This type of trust does not come into effect until after the trustor’s death and is commonly used in estate planning. Multiple testamentary trusts can be created by one will.

A child maintenance trust is usually created due to a family breakdown. However, it can also be used if the parents of a child are not living together, and a financial maintenance order is in place.

Why do people use child maintenance trusts?

A child maintenance trust allows property required for the ongoing support of children to be kept in a trust separate from both parents. Such a trust protects property from creditors seeking a parent’s assets and can reduce income tax payable by parents.

A bare trust is the simplest form of a trust. The trustee holds the property of the trustor for the beneficiary. The trustee has no duties to perform other than to transfer the property of the trust to the beneficiary when they are instructed.

Why do people use bare trusts?

Bare trusts are used to hold real estate when the property owner prefers not to disclose the ownership.

A hybrid trust combines structures of different trusts. Most commonly, a hybrid trust is a cross between a unit trust and a discretionary trust.

The trustee of a hybrid trust has the discretion to distribute income from the trust to the discretionary beneficiaries. The unit-holders have the right to receive income and capital in proportion to the units they hold.

Why do people use hybrid trusts?

The flexibility of a hybrid trust makes it particularly suitable for situations where two or more unrelated people co-own an investment or business.

A superannuation trust provides retirement or death benefits to its members, the beneficiaries. All superannuation funds in Australia operate as trusts.

Why do people use superannuation trusts?

Superannuation trusts offer tax concessions, flexibility for beneficiaries to make investment decisions to maximise their returns, and a process to accumulate assets which can be used to pay a pension at retirement. However, they require the beneficiaries to pay attention to the performance of their investments, as well as to the economy and changes in legislation.

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litigation lawyer?

If you have a dispute in Queensland, we can help resolve it.

We are civil & commercial litigation lawyers

Why choose Gibbs Wright

There are hundreds of law firms in Queensland, but only a handful of them focus solely on litigation, and fewer still have the necessary skill and understanding to deliver commercially viable results for your matter.

At Gibbs Wright, we exclusively practice in litigation and dispute resolution, and as a client of ours, we want you to feel confident that you will receive unparalleled service and dedication for your dispute.

Our firm represents both plaintiffs and defendants across Queensland, in a wide range of litigation and dispute matters, and no case is too small, too large or too complex for our lawyers to take up the fight.

Whether you are an individual or one of Australia’s largest companies, your case deserves the same level of attention and dedication – and that is what we strive to provide to each and every client.

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At Gibbs Wright Litigation Lawyers, we offer an initial no-cost, obligation-free consultation to help you understand your options. We’re here to fight for you.

Legal viability

Why do trust disputes occur?

The complex legal and structural nature of trusts can lead to complications and disputes. Disputes often occur between the trustee and beneficiary(ies) of the trust. The causes of these disputes can include:

Breach of trust

A breach of trust is serious because it generally involves the trustee acting in contravention of the duties imposed on them. This can include the trustee acting negligently or dishonestly, not exercising their powers reasonably or in good faith, or exceeding the powers vested in them.

Conflicting beneficiaries and trust assets

Conflicts between beneficiaries can arise when the beneficiaries disagree on a particular aspect of the trust. A common example involves disagreement about the division of trust property between beneficiaries.

Administration and management of a trust

Disputes about the administration or management of a trust are generally instigated by beneficiaries who are not happy with the trustee’s performance. Unhappy beneficiaries may question the appointment and/or remuneration of the trustee or other operational issues, such as the timing of entitlements, and can attempt to remove and replace the trustee.

Dispute resolution

What happens when there is a breach of trust?

If a breach of trust occurs, the beneficiaries’ remedies are both personal and real. When a beneficiary has suffered a loss as a result of the trustee’s breach of trust, they may be able to recover their loss from the trustee in damages. The remedies available to the beneficiary depend on the particular circumstances of each case.

Legal viability

Remedies for breach of trust

When a breach of trust has occurred, the trustee is liable to the beneficiaries. Common remedies include:

Depending on the beneficiaries’ circumstances, a trustee may be liable to recompense the trust estate by the amount of loss which has been caused by the wrongful act. Loss may be due to misappropriation of the trust fund, for example wrongful investment or payment to someone not entitled to receive property. 

Depending on the beneficiaries’ circumstances, if the trustee has misappropriated trust property for their own benefit, a beneficiary can trace the property and reclaim its value. This applies even in those cases where the trustee has transformed the nature of the investment, for example converted property into cash and bought another property. The right to trace can also apply when the property is transferred to a third party.

A remedy of account of profits is available only for profits which are dishonestly made, and it would be unconscionable for the wrongdoer to retain them. An account of profits can include capital profits as well a trading or revenue profits where the profits were made via wrongdoing.

A remedy of injunction can restrain a trustee from engaging or continuing to engage in the conduct which has resulted in the breach of trust.

Trust dispute resolution

How Gibbs Wright Litigation Lawyers can help you

Trust disputes are a complicated area of law. Our trust dispute lawyers assist clients with all types of disputes, from minor disagreements that can resolved through mediation to complex litigation matters involving extensive court proceedings. If you’re a beneficiary of a trust or a trustee accused of breaching your responsibilities, contact Gibbs Wright about your trust dispute today. We offer a free, confidential, no-obligation consultation.

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Mediation

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Sending a letter of demand

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Making a claim through court or tribunal

Trust dispute questions

Frequently asked questions

To be eligible as a trustee, a person must be aged at least 18 years, not have a legal disability and be able to own property. The trustee can be an individual or a company.

Due to the complicated nature of trusts and the duties of a trustee, the person taking on the role must be aware of their responsibilities.

The beneficiary of a trust can be an individual or a company. There are really no limits on who can be a beneficiary. Minors, people who are affected by disabilities and even unborn children can be beneficiaries.

In most instances yes, a trust can be disputed. When a trust is disputed it means that the validity or authority of the trust is being challenged.

Common reasons for trust disputes involve management of the trust, trustee actions, and division of trust property. Disputes may be brought by beneficiaries or other trustees.

The way in which a trust dispute is managed depends on the type of trust and the reason for the dispute. It is important to seek legal advice early, to help minimise the harm and damage that can be caused. Call Gibbs Wright Litigation Lawyers for a free, confidential, no-obligation discussion about your options to manage your trust dispute.

There are many types of trusts, so the reason(s) for creating a trust may vary.

Essentially a trust is a form of property ownership which allows others to benefit from the distribution of income gained by the property.

Benefits of trusts include:

  • Providing for family members

A trust can allow a person to share their property with their chosen beneficiaries, for example, their children and grandchildren. A trust can allow the property owner to determine how the property is to be held and distributed. A trust is particularly useful if the beneficiaries are too young, or are unable to manage their own finances.

  • Protecting assets

Another reason trusts are often created is to separate a person’s assets from their estate. When assets are in a trust, they are in the name of a trustee. This helps in situations such as when a business fails, because creditors will be unable to pursue any assets that are in the trust.

Asset protection and trusts are complex, so it’s best to seek legal advice to receive the most up-to-date information.

  • Tax advantages

There are tax advantages to holding assets in a trust. One main advantage is that the income generated by those assets is taxed at the rate that applies to the beneficiary. This rate is often lower than the rate that applies to the original owner.

Because there are many different trust types, it’s important to discuss your options with a taxation lawyer.

Yes, a trustee can also be the beneficiary of a trust, but not the sole beneficiary unless there is more than one trustee.

Where a trustee is also a beneficiary of a trust, it is recommended that more than one trustee is appointed to avoid complications regarding the improper exercise of power.

A trust litigation lawyer can help deal with trusts of any type and in a variety of ways. Most commonly, a trust lawyer is needed if:

  • The validity of a trust is questioned;
  • The distribution of the trust assets is disputed; or
  • The actions of a trustee are believed to be improper.

A trust lawyer can help all key players involved in a trust. They can determine whether concerns are valid and the steps that should be taken to resolve a dispute.

Common assets in a trust, called trust property, include cash, securities, business interests, real estate and life insurance policies.

Under the Limitations of Actions Act 1974 (Qld), there is a six-year time limit for a beneficiary to take action against a trustee, unless the action is related to fraud, or to the recovery of trust property or proceeds of trust property.

In most instances, for a trustee to be removed from a trust, it needs to be proven that removal is needed:

  • Because the trustee has not fulfilled their duties;
  • To protect the trust assets and the beneficiaries; or
  • Because the trustee is exercising their powers in a prejudicial way.

Trustee behaviour that can lead to removal includes when a trustee is:

  • Confused about, or misunderstands, their duties;
  • Unable to be contacted; or
  • Acting in a way that harms the trust.

Most trusts will have a date by when they must be formally dissolved. This process is known as vesting. The vesting date is usually included in the terms of the trust deed. In many trusts the vesting date is 80 years from when the trust was created.

When a vesting date is reached, the trust must be dissolved. However, the trust may be dissolved prior to the vesting date, when:

  • It is revoked. A trust may contain a provision that allows the trustee or trustor to revoke the deed.
  • The beneficiaries have consented. All beneficiaries must be aged at least 18, and collectively decide to dissolve the trust, and the trustee must formally declare and record the trust as terminated.
  • A court orders that the trust be dissolved.

When a trust is dissolved, all property held in the trust is distributed according to the trust deed.

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Meet our litigation team

Yusuf Furgan
Senior litigation solicitor

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Yusuf combines his formidable legal research and problem-solving skills together to resolve employment and commercial disputes.

Rebekka Hallberg
Senior litigation solicitor

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Rebekka is dedicated, driven, and an out-of-the-box type thinker, who assists our clients in a wide variety of litigation and IP matters.

Melany Dowse
Special counsel

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Melany represents a range of clients from individuals and small businesses to body corporates and insolvency practitioners.

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