Why Your Family Trust Will Not Follow Your Will

A will and a family trust deed are separate instruments. Where someone controls a discretionary family trust, the assumption that a well-drafted will settles the question of what happens to their assets on death is not correct.

For assets held personally, that assumption is broadly correct, setting aside any family provision claims. For assets held in a discretionary trust, it is wrong, and a recent Supreme Court decision shows how that mistake can persist for more than a decade before it surfaces.

How a trust differs from personally owned property

When a person dies, their personal assets pass through their estate and are distributed under the will. The executor administers the estate in accordance with the will.

A discretionary family trust is different. The trust is not part of the estate and does not pass under the will. It continues as a legal structure after the controller’s death, administered by whoever the deed designates as the next appointor or trustee.

A trust has no executor; the person who controls it after the founder’s death is bound by the deed, not by the deceased’s wishes.

Why challenging a trustee is harder than most people expect

The will and the trust deed are independent legal instruments operating under different bodies of law: the will is governed by succession law and given effect by the executor; the trust deed is governed by the law of trusts and given effect by the trustee. After the controller’s death, the trust assets are governed entirely by the deed. That independence has a practical consequence beyond what most people expect: even where beneficiaries believe the trustee is acting against the deceased’s wishes, the grounds on which a court will intervene are narrow.

Most discretionary family trust deeds give the trustee wide, or absolute, discretion over how income and capital are distributed. In Karger v Paul [1984] VR 161, the Supreme Court of Victoria held that courts will not examine how that discretion was exercised, provided it was exercised in good faith, on genuine consideration, and in accordance with the purposes for which it was conferred. A beneficiary who disagrees with how distributions are allocated cannot compel a different outcome on that basis alone.

The Victorian Court of Appeal refined this position in Owies v JJE Nominees Pty Ltd [2022] VSCA 142. The trustee of the Owies family trust had resolved year after year to distribute trust income overwhelmingly in favour of one of the three adult children, in circumstances where the other two were also named beneficiaries. The Court held that even where a deed grants absolute discretion, the trustee must give real and genuine consideration to each named beneficiary; it cannot implement a fixed formula or defer mechanically to the appointor’s direction. The Court ordered the replacement of the trustee on the basis that it was unable to act impartially. Owies confirmed that “absolute” does not mean “unsupervised”, but the bar for court intervention remains demanding: a trustee who genuinely and impartially considers each beneficiary is acting lawfully even if the outcome disappoints particular beneficiaries.

The practical consequence for succession planning is that a successor trustee or appointor can administer the trust in ways the deceased never intended, and the people left behind have no effective remedy unless they can show that the trustee has failed to give genuine and impartial consideration to each beneficiary.

When the plan fails

In a scenario where a business owner’s will leaves everything to the surviving spouse, the shares in the family company and an investment property are held in a discretionary trust with a corporate trustee. The legal owner of those assets is the corporate trustee, holding them on the terms of the trust deed; the controller could be, depending on those terms, the appointor or the director of the corporate trustee. Assume the business owner holds both roles. On the business owner’s death, the appointor power passes under the deed to an adult child from a prior relationship. That child appoints a new trustee and redirects distributions. The surviving spouse has no effective control over the trust assets and no reliable basis for challenging the new trustee’s decisions.

The will did what it was meant to do for the personal assets. The trust followed the deed, and the result was not what anyone had planned.

Getting the plan right

Trust succession planning starts with a review of how control over each trust passes when the controller dies. The appointor role, the guardian role (where the deed provides for one), the trustee, and the trustee directorship (where the trustee is a company) each have their own succession mechanism. These mechanisms govern the control roles, not the trust assets, which never pass under the will. Some roles transfer automatically under the deed; others can be transferred by will, but only where the deed expressly permits testamentary appointment to that role; others again require a specific action during the controller’s lifetime, such as a written notice or a deed of variation. Where the trustee is a company, ownership of the shares in that company is a separate question, because the shares are personal property that passes through the estate under the will. A misalignment between the appointor role and the ownership of the trustee shares can paralyse the trust or produce unintended outcomes.

Not every mechanism the controller assumes is in place will actually work, and some do not exist in the deed at all. Any past variations to the deed or appointments of new trustees should also be reviewed to confirm they were validly made; an ineffective variation or appointment can leave the trust operating on terms that no one involved realises are wrong.

Whether those mechanisms are adequate is a separate question. A power of appointment is a creature of the deed that creates it; it can only be exercised, transferred, or transmitted in the manner the deed authorises (see, in the context of trust variation, Mercanti v Mercanti (2016) 50 WAR 495). It follows that the appointor role can be passed by will only where the deed expressly contemplates testamentary appointment to that role. If the deed is silent on succession, the role may lapse on the controller’s death, or default to whoever the deed designates. The Supreme Court of New South Wales dealt with the lapse scenario in Deemhire Pty Limited [2026] NSWSC 318, decided 2 April 2026. The trustee of a trust settled in 1986 had to seek court intervention to appoint a replacement appointor because the founder died in 2011 without any succession mechanism in place.

Where the review identifies gaps, the estate plan needs to account for the will and each trust deed as separate instruments. If the founder wants the trust administered in a particular way after death, a will alone will not achieve that. Depending on the circumstances, the response may include amendments to the trust deed, changes to the will, or both. Each option carries its own legal considerations, including the risk of resettlement: an amendment so fundamental that it creates a new trust and may trigger capital gains tax and stamp duty consequences. These are not steps to take without professional advice.

The starting point

A well-drafted will is not enough if you control a trust. The will and the trust deed are independent legal instruments, and neither binds the other.

Succession planning for a business owner with a family trust requires a review of each trust deed alongside the will, with a coordinated strategy across both. If your trust deed was settled more than ten years ago and has not been reviewed since, or if you have never considered how the appointor role passes on your death, that review is a practical starting point.

How Opportuna Legal can help

Opportuna Legal advises on trust structuring, succession planning, and estate coordination. If you control a discretionary trust and have not reviewed how the appointor role, the trusteeship, and the corporate trustee shares pass on your death or incapacity, or if you are uncertain whether past variations to the deed were validly made, contact Opportuna Legal.

 

Anthony Jarvis | Managing Partner, Opportuna Legal