At W & G Lawyers, we regularly advise families, business owners, and trustees on the use of family trusts for asset protection, succession, and tax planning.
While trusts can be powerful and flexible, the trust deed — the legal “rule book” — is often overlooked. Differences in wording between deeds can create major legal and financial consequences, sometimes leading to disputes or unexpected tax bills.
This newsletter highlights key lessons from important cases and explains why keeping your deed up to date is essential.
Why the Deed Matters
A family trust is a discretionary trust used to hold assets or operate family businesses. It offers:
- Asset protection – shielding wealth from personal creditors.
- Succession planning – enabling smoother transfer of assets across generations.
- Tax efficiency – allowing distribution of income to family members to reduce tax.
But these benefits only work if the deed is clear, current, and correctly followed.
Four Key Cases Trustees Should Know
- Bamford v Commissioner of Taxation (2010)
The High Court confirmed that trustees can define “income” for trust purposes if the deed allows.
Takeaway: Your deed should give the trustee wide and clear discretion to define income.
- Forrest v Commissioner of Taxation (2010)
The Full Federal Court held that the trustee’s power was too narrow to re-characterise receipts.
Takeaway: Unless the deed is clearly drafted, trustee powers may be limited.
- Mercanti v Mercanti (2016)
A WA family dispute turned on the single word “hereinbefore” in a variation clause. Litigation was lengthy and costly.
Takeaway: Ambiguity in drafting can spark disputes. Plain English drafting is essential.
- BRK (Bris) Pty Ltd v Commissioner of Taxation (2001)
The trustee made distributions to ineligible companies, leading to invalid distributions and taxation at the top marginal rate.
Takeaway: Distributions must strictly follow the deed. Errors can be very costly.
Practical Lessons for Trustees and Families
- Review your deed regularly: laws and family circumstances change.
- Avoid unintended beneficiaries: consider excluding non-blood relatives or “foreign persons” (stamp duty/land tax issues).
- Follow the deed precisely: invalid distributions can attract penalties.
- Prioritise clarity: plain English reduces misinterpretation and disputes.
Conclusion
A family trust is only as effective as the deed that governs it. Small differences in wording can mean the difference between smooth succession and litigation.
If you have an existing family trust, or are considering establishing one, we recommend a legal review to ensure it reflects your family’s needs and remains compliant with current law.
Contact W & G Lawyers
Our team can assist with:
- Reviewing existing trust deeds.
- Drafting deed variations tailored to your objectives.
- Preparing new deeds that align with your needs.
- Advising on tax-related variations in collaboration with your accountant and financial adviser.
📧 info@wglawyers.com.au
👩⚖️ Lawyer: Xiaonan (Nancy) Wang – Profile
📱 07 2810 5666
🌐 www.wglawyers.com.au
Useful Resources
For further information, you may refer to:
Disclaimer
This article is intended to provide general information about family trusts and trust deeds. It is not intended to be, and should not be relied upon as, legal, tax, or financial advice. Trust law is complex and outcomes often depend on the specific wording of the deed, the trustee’s actions, and individual circumstances. You should obtain independent professional advice before making any decisions or taking any action in relation to your trust. W & G Lawyers does not accept liability for any loss arising from reliance on this publication.