How Do I Change My Discretionary or Family Trust?

Sometimes you will need to change your discretionary trust (also known as a family trust). For example, you might want to change the trustee or add additional beneficiaries. However, changing a trust can be a complicated process and it is essential to ensure that you do it right. Not doing so may mean that the changes are invalid or may cause you to incur additional tax. This article explains the basics of changing a trust to start you off on the right foot.

The Trust Deed and Deed of Variation

The trust deed sets out the rules for the trust, including how the trust may be amended. For example, it will describe whether the trust allows you to change the trustee and the procedure for doing so. For making any change to a trust, the golden rule is to always follow the trust deed’s instructions.

To change the trust deed itself, you must execute a deed of variation. This is a document that updates the relevant section of the original trust deed. The deed of variation forms part of the documentation of your discretionary trust and details how the trust deed has been changed over time. Therefore, you should keep the deed of variation with the rest of your trust’s documents.

It is important that you receive both legal and accounting advice before changing a trust deed. Not following the correct procedure may mean you are actually ‘resettling’ the trust, which is creating a new trust out of an old one. This can make you liable for additional taxes such as stamp duty.

Changing a Trustee

If you would like to change the trustee that administers the trust, you must first consider whether they are an individual or a corporation.

Individual Trustees

The trust deed lists the trustees. Therefore, to change an individual trustee, you need to amend the trust deed. Most trust deeds permit a change of trustee by way of a trustee resolution and entry into a deed of variation. A trustee resolution is a signed statement of the actions taken by the trustee.

A change of trustee will usually require the consent of the appointor of the trust. An appointor is a person who has the power to remove the trustee. They are usually the person who establishes the trust. The new trustee will also need to sign a consent to act as trustee of the trust. This is a form provided by the Australian Financial Security Authority.

It is also important to note that an individual trustee holds the trust’s assets in their individual name. Therefore, the title on the ownership of property will have to be changed to reflect the new trustee.

Corporate Trustee

If the trustee is a corporation (a corporate trustee), the trust is controlled by the corporation’s directors. Therefore, changing the people who control the trust is usually just a matter of changing those directors. To change directors:

• the existing directors must resign;
• the new directors must sign a consent to act;
• the company’s directors register must be updated; and
• you must notify ASIC within 28 days of making the change (by completing the form Change to company details).

However, if you want to change the corporate trustee and move the trust to a new corporation, you will need to follow the same steps as for changing an individual trustee.

Removing a Trustee

The terms of the trust deed will usually set out the procedures to effect the resignation or removal of a trustee. However, there must always be at least one trustee. Therefore, if the trust only has one trustee, you must appoint a replacement at the same time the former trustee is removed.

A trustee may resign or remove themselves as trustee. Usually, the trust deed will also give the appointer the power to remove a trustee. A trustee who wishes to resign will need to provide a signed letter of resignation to the appointor. If there are other trustees, the letter will also need to be sent to them.

Adding or Removing Beneficiaries

The beneficiaries of a trust are those to whom the trustee may distribute trust assets. The trust deed may define the beneficiaries as a broad class (e.g. all family members) or a narrow set of specific people.

You may not need to remove a beneficiary just because you do not want to distribute the trust assets to them. As the name suggests, a discretionary trust is discretionary — the trustee has no obligation to distribute trust assets to any particular beneficiary. However, if you do wish to remove someone as beneficiary, you can do so by executing a deed of variation.

When adding a beneficiary, it is important to review the trust deed to determine who is already included in the class of named beneficiaries. The existing class may already encompass the person who you wish to add. If the class of beneficiaries does not extend to that person, you can add a beneficiary by preparing a deed of variation. However, the original trust deed may prohibit certain persons from becoming beneficiaries. In this case, you may not be able to amend the trust deed to add them.

Key Takeaways

Changing a trust can be complex. The starting point is to review the trust deed — it will detail how changes must be made. In most cases, the change will require the trustee to sign a deed of variation. However, if you simply want to change who the trust’s assets go to, you may not need to make a formal change. In a discretionary trust, the trustee has the discretion to distribute (or not distribute) trust assets to beneficiaries as they see fit.

Failing to follow the right procedure for changing a trust can make the changes invalid. It can also make you liable to pay additional taxes.