Do you want to appoint a trustee as a beneficiary of a discretionary trust? There are facts you should be aware of.

Under the legislation, the trustee of a trust may be a person or a company (a corporate trustee). In either case, the trustee must be legally capable of holding trust property in their own right. The trustee holds the trust property for the benefit of the beneficiaries and must act fiducially; complying with their duties.

Where the trust is established by deed (which in the case of a deceased estate is the will), the trustee must deal with the trust property in line with the intentions of the settlor as set out in the trust deed.

Under trust law, trustees are:

  • personally liable for the debts of the trusts they administer, and
  • entitled to be indemnified out of the trust property for liabilities incurred in the proper exercise of the trustee’s powers (except where a breach of trust has occurred).

The trustee may also be a beneficiary, but not the sole beneficiary unless there is more than one trustee: but be careful of this as it is not best practice. While it is presumed that the trustee will act genuinely and in accordance with their duties, it is advisable that a settlor include more than one trustee when one of the beneficiaries is also the trustee. It is an appropriate way to avoid improper exercise of power at the sole discretion of one trustee.

It is also important because, under tax law, the trustee is responsible for managing the trust’s tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities; a large role to entrust to someone.

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