Legal Tip 389: Trustee Paying Guardian of a Child who is Not a beneficiary of the trust

Discussion in 'Legal Issues' started by Terry_w, 6th Apr, 2022.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If someone dies their minor children might go and live with someone – who might be a surviving parent, or a legal guardian or someone with no legal status. The deceased parent may have left a trust for that child.

    What happens if the trustee wants to pay that person and they are not a beneficiary of the trust?


    Under NSW law, section 43 of the Trustee Act 1925 they have the power to do this for Trust income. S44 allows capital of the trust to be used – with limitations.

    TRUSTEE ACT 1925 - SECT 43 Maintenance for infant beneficiaries and accumulation--instruments that came into operation on or after 1 March 1926


    Example

    Homer is dead and Marge dies a few years later leaving 2 young kids. Neighbour Ned Flanders takes them in and looks after then even though he is not the legal guardian.

    Barney is a trustee for each of them holding their money until the reach the age of 25.

    Ned asks Barney if Barney could distribute some of the trust income to him so that he can use it to support the kids in their life and education expenses. The will doesn’t have any clauses allowing this. Barney would be breaching the terms of the trust and could be sued by the kids later if he did this.

    But s43 may save him. Even though Ned is not the legal guardian of the kids they are living with him and this is covered in s43(1).

    Barney would be wise to seek legal advice before doing so though.


    Note that once the kids reach 18 Barney would not be covered by s43 in NSW. This would only be permissible if the will allowed it. This is different to other states where it could be possible.