Since the rise in usage of family trusts in Australia from the 1970s, trustees of family trusts have been subjected to many changes/interpretations in the law handed down by the Courts, the ATO and the State and Federal governments.

These changes make it vital that Trustees and their advisers carefully review the distribution minutes that they use each year to ensure that they still follow best practices.

The recent Victorian Supreme Court of Appeal decision of Owies v JJE Nominees Pty Ltd (ACN 004 856 366) (in its capacity as the trustee for The Owies Family Trust) [2022] VSCA 142 (“Owies”) has put trustees on notice of the need to genuinely consider all beneficiaries, and in particular the primary, named or specified beneficiaries when making their trust distributions.  The failure to do so may result in certain trust distributions made in a particular year being voidable.

This case highlights the point that for a trustee to genuinely consider a beneficiary as being entitled or not entitled to income for a particular accounting period, the trustee should as a minimum, make enquiries as to the primary, named or specified beneficiaries’ circumstances.

The absence of such evidence may assist a beneficiary in making a successful claim against the trustee for not receiving a (or receiving an inadequate) trust distribution in a particular year.

For the trustee to avoid an adverse court judgement against them for the future trust distributions, the trustee may need to do one or more of the following:

• Make enquiries each accounting period on the needs and circumstances for every primary/named/specified beneficiary as a minimum.
• Internally document their enquiries and considerations.
• Consider removing certain primary beneficiaries from the trust – subject to review of the trust deed.

If you would like more information about setting up family trusts or the distribution of family trusts, please contact Lisa Delalis or John Bateman at our office on 02 4731 5899 or email willsestates@batemanbattersby.com.au.