During their lifetime many people act as either a trustee of a family trust or an executor or administrator of a will with very limited knowledge of their powers or duties and without having a clear understanding what they should or should not be doing.
Where there is a trust deed, such as for a family trust, the deed will typically cover the powers of a trustee and mechanisms such as for changing a trustee. There is not always a trust deed. Even if there is, it may not sufficiently address specific matters or powers.
Trustees should be aware that under the Trustees Act 1962 (WA) there are provisions which enable both a trustee to seek directions from the Supreme Court and also provisions which permit someone with a beneficial interest in the trust to take action against the trustee if they are not acting appropriately.
For the purposes of the Trustees Act a trust is not just confined to a trust created by deed but is defined to include:
- implied and constructive trusts;
- cases where the trustee has a beneficial interest in the trust property; and
- duties incidental to the office of an executor or administrator of an estate of a deceased person.
Recent examples of a trustee seeking directions include:
- Carr v Larussa  WASC 13 in which directions were sought as to whether an administrator was justified in defending claims that there was a valid will and that she was acting under a conflict of interest.
- Australian Executor Trustees Ltd v Attorney General (WA)  WASC 439, in which the trustee sought directions as to whether it was justified in executing a deed of settlement containing particular clauses.
- Browne v Matthew Jaime Bassettscarfe as executor of the will of the late Dawn Lorraine Phillips  WASC 422 in which directions were made that it was appropriate for the executor to continue to oppose the plaintiff’s Family Provision Act claim.
- AIK Corporation Pty Ltd (Administrators Appointed) v 119 Nicholson Road Pty Ltd  WASC 391, in which the Court conferred additional powers on the trustee rather than appointing a provisional liquidator to the trustee of the trust.
The benefit of seeking directions when in doubt is that if the directions are made and followed, the trustee would be protected from claims by a beneficiary or creditor of the trust arising from that action or inaction in accordance with the Court’s direction. It can also enable a disputed or deadlocked situation to be addressed. In contentious matters, or where powers are unclear, a trustee would therefore be wise to seek directions. An additional benefit is that family relationships may well be preserved by seeking directions early rather than allowing a protracted dispute to arise between family members.
Unfortunately, particularly where there has been a breach or failure of duties by the trustee in carrying out their role or a dispute arises, action may be taken against the trustee. Examples of such applications include an application to review the conduct or a trustee or remove the trustee of the trust either under the Court’s inherent jurisdiction or under the Trustees Act. The dominant consideration for the Court to exercise jurisdiction is the welfare of the beneficiaries of the trust. Two recent cases are:
- Blenkinsop v Blenkinsop Nominees Pty Ltd as Trustee for the Blenkinsop Family Trust  WASC 463 in which the widow of the deceased Fred Blenkinsop applied to the Court. There were questionable appointments to the board of directors of the trustee, a dysfunctional board, there had been some apparent blending of trust and personal assets, there was conflict and lack of trust between the family members who were directors, poor communication, and there was a need for the widow to rely upon an income stream from the trust which could not be secured while such dysfunction existed. After 4 years of dysfunction, the Court removed the trustees and replaced them, vesting the property in the new trustee who was a qualified liquidator.
- Winter Holdings (WA) Pty Ltd  WASC 162 in which the trustee was placed into liquidation and a receiver appointed to manage the businesses operated by the trusts following failure of the corporate trustee to dispute or pay a significant tax liability. The individual who was ultimately in control of the trusts was removed from the positions of control.
Executors and administrators may also be held to account for transactions, for wilful default or for any profit they make, and the process of doing so becomes more onerous where there are allegations of wilful default and breaches of the trustee’s fiduciary obligations.
Obtaining advice about such matters and making an application to the Supreme Court for directions can be critical to avoiding a range of adverse consequences for trustees including personal liability for trust losses or costs and destruction of family relationships.
The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.