Legal Tip 300: Can the Trustee of a Trust Be a Beneficiary of that Trust?

There is a legal principal that a person cannot be a beneficiary for themselves as the definition of a trust is the trustee holds property for others. But a Trustee can be one of the potential beneficiaries of a discretionary trust – or even a unit trust.


However, being a trustee is the highest form of fiduciary there is. The trustee has the opportunity to enrich themselves if they are the trustee so it would be a breach of trust for the trustee to distribute any income or capital to themselves – unless the trust deed specifically permits a trustee to do this. They need to be able to act despite the personal interest.

Many trust deeds automatically exclude the trustee from being a beneficiary for this and other reasons.

One other reason is that the NSW Duties Act will allow for the change of trustee to be done with just a $50 nominal duty, but only if the new trustee cannot be a beneficiary of the trust. If they were a beneficiary, even a potential beneficiary, then full duty would apply on the transfer of any trust property from the old trustee to the new trustee. This also applies to continuing trustees too.

Because of this many standard trust deeds exclude trustees from benefiting from the trust – even though the stamp duty issue only applies where the trust holds property in NSW.


So, a trustee can be a beneficiary but only if the deed allows it and only if there is a power to benefit themselves.


But the next question should be – “should a trustee be an individual or a company?”

Just because you can doesn’t mean you should!


Get legal advice before setting up any trust and read the deed if full before signing as it can be changed before it comes into existence. It can be very costly to change a trust after established.


Example

Ned sets up the Nedster Trust which invests in shares. There is a wide class of beneficiaries of the trust with Ned his wife Maude being the primary beneficiaries. The deed allows the trustee to benefit themselves despite it being a conflict of interest.

At the end of the financial year Ned causes both himself and his uncle to be presently entitled to the income of the trust.

 

As you said, terry, just because you can doesnt mean you should.

whats the benefit of allowing trustee to benefit from the trust? A $2 company as trustee and never benefitting would be cleaner?

 

Simplicity and monetary savings.

 

and the avoidance of the Corporations Act