How to Remove a Trustee from a Discretionary Trust or SMSF
If you are a beneficiary of a discretionary trust or a self-managed superannuation fund (SMSF), you might be wondering how you can remove a trustee who may not be acting in the best interests of the trust and/or the beneficiaries.
In this article, we delve into some of the important steps and principles of removing a trustee.
Removal by Deed
The first step is to check the trust deed, as most of them would include a process for removing a trustee.
Common ways a trustee can be removed, in accordance with the specific mechanism provided for in the trust deed, can include by way of a deed of variation or deed of appointment or the automatic removal of a trustee upon the occurrence of an insolvency, death and/or loss of capacity.
If your trust deed does not provide a removal mechanism, you may need to seek the assistance from the Court by making an application pursuant section 48 of the Trustee Act 1958 (Victoria) (Act) or the Court’s inherent jurisdiction to remove a trustee.
Removal by Court
Generally, the Court, when determining a removal application, will consider different factors and circumstances which are unique to each case, as demonstrated in the following two cases:
Case 1) Unsuccessful Removal Application
Teterin v Linrod Pty Ltd [2024] NSWSC 1635
Facts:
- This case concerns a discretionary family trust whose principal asset was a 108-acre farm in New South Wales.
- The dispute arose over the management of the trust and the appointment of a trustee namely, Linrod Pty Ltd (Linrod) of which only one of the four children of the deceased, namely Stephanie, was the sole director and shareholder.
- The plaintiffs (being the other four children of the deceased) sought to remove Linrod on the basis that the trustee had a conflict of interest in managing the trust assets, allegedly for Stephanie’s own personal benefit.
Decision:
The Court refused the plaintiffs’ removal application, ruling that while some issues existed, there was no serious breach of duty. The Court also considered the financial consequences of appointing a professional trustee, in place of Linrod, which could have led to the sale of trust assets which was detrimental to the trust and the beneficiaries.
Case 2) Successful Removal Application
Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65 and Wareham v Marsella [2020] VSCA 92
Facts:
- The deceased (Helen) was survived by her husband of 32 years, (Riccardo) and her two adult children from her previous marriage, the first defendant (Caroline) and Charles Swanson (Charles).
- Prior to Helen’s death, Helen was the sole member of the Swanson Superannuation Fund (the Fund) and a personal trustee of the Fund with Caroline, and she left no valid binding death benefit nomination at the time of her death.
- After Helen’s death, Caroline became the sole trustee of the Fund and subsequently appointed her husband (Martin) as an additional trustee of the Fund.
- Riccardo made an application to remove the trustees of the Fund on the basis that the trustees made the decision to distribute Helen’s entire death benefit, being the amount of $490,000, to Caroline only.
Decision:
The Court found that the trustees failed to act in good faith and did not properly consider other potential beneficiaries, including Riccardo, who was also the executor of the estate. Further, despite the trustees’ strained personal relationship with Riccardo, the trustees failed to see that their decision to distribute all of the proceeds of the Fund to Caroline, could place them in a position of conflict.
As a result, Caroline and Martin were removed as trustees. The decision was later upheld on appeal, reinforcing the fundamental principle that the trustees have a duty to avoid conflicts of interest, and they must act in the best interests of the beneficiaries and not for their own personal gain or to the detriment of the trust.
What You Need for a Successful Trustee Removal
In summary, a successful removal application should be supported by evidence showing the following factors:
- the trustee’s actual failure (as opposed to a mere assertion) to act impartially and to give real and genuine consideration to the interests of the beneficiaries. For example, a trustee must make their own decision about how to use their powers, rather than simply doing what someone else tells them to do. In the case of Owies v JJE Nominees Pty Ltd [2022] VSCA 142, the Court found that because the trustee distributed the income the same way every year, it seemed like they were not properly considering each beneficiary’s individual needs before effecting such distributions;
- the fractured relations between the beneficiaries and the trustees which could potentially lead to a position of conflict;
- Whether the replacement of the trustee is necessary to promote a workable situation in relation to the operation of the trust and to protect the beneficiaries and the trust assets; and
- In the event of a successful application, who the alternative trustee will be and what are its/his/her costs for acting in such role, as this may force the disposal of one or more of the trust’s assets.
Need Legal Help?
If you are concerned about your rights as beneficiary of the trust and wish to know more about the process of making an application to remove a trustee, please contact us at (03) 9598 9489 for expert advice tailored to your situation.
