The Trustee’s Dilemma: Balancing Duties with Discretion

QUICK ANSWER:

A trustee of a discretionary (family) trust must act honestly, preserve the trust’s property, follow the trust deed, and give each beneficiary “real and genuine consideration” before distributing income or capital, as confirmed in Owies v JJE Nominees Pty Ltd [2022] VSCA 142. In Queensland, trustees must also now meet the codified duties in the Trusts Act 2025 (Qld), which commenced on 28 April 2026 and replaced the Trusts Act 1973.

A trust structure can provide a number of advantages, including tax minimisation, asset protection and control over how property and/or assets are held and distributed. Being appointed as a trustee of a trust means, as the name suggests, that someone has placed you in a position of great trust and confidence. In this article, our commercial and estate teams consider the application of trusts, trustees’ obligations, and the duty of a trustee to exercise “real and genuine consideration” in exercising their powers, including what’s changed under Queensland’s new Trusts Act 2025.

BACKGROUND – TRUSTS AND TRUSTEES

Trusts are an effective tool for dealing with finances between families, businesses and in estate planning. However, many people misunderstand the functions of trusts and how they operate.

At its simplest, a trust is a mechanism for controlling the distribution of property and assets. It involves a legal agreement where a person (known as the ‘settlor’) transfers property and/or assets to another person or entity appointed to manage the trust (the ‘trustee’) for the benefit of a third party or parties (the ‘beneficiaries’). This agreement is documented through a trust deed.

The parties to a trust will ordinarily include:

• Settlor: the party who establishes and “sets up” the trust;
• Beneficiary : the party(s) whom the trust is established for and who receive the benefit of the trust (i.e. through distributions of trust income and property);
• Trustee: the party who is responsible for the administration of the trust; and
• Appointor: the party who monitors the trustee and keeps them in check, with the power to appoint and remove the trustee.

There are several types of trusts, each of which serves a unique role and offers different ways of dealing with property and assets.

This article looks specifically at discretionary trusts (also commonly referred to as “family trusts”), the most common trust structure in Australia. Unlike a fixed trust, a discretionary trust is one where beneficiaries do not have any fixed entitlement or interest in the trust property and assets; rather, the trustee has discretion to determine how the trust’s income and assets are distributed to beneficiaries (within the confines of the trust deed). For a closer look at our own discretionary trust and family trust services, see our trusts page. For the tax treatment of these structures, the ATO’s own guidance on family trusts is a useful starting point.

Discretionary trusts are also commonly used in estate planning through a type of discretionary trust called a testamentary trust. For more on testamentary trusts and how they’re used in estate planning, see our articles on testamentary trusts: benefits and pitfalls and our testamentary trusts service page.

TRUSTEES’ OBLIGATIONS

Under a discretionary trust, a beneficiary’s rights are limited to the right to be considered by the trustee in the distribution of trust income and property. This means a beneficiary is not necessarily entitled to any trust distribution.

A trustee therefore has an obligation to exercise discretion in the distribution of the trust. However, a trustee’s duties are not limited to this. A trustee’s obligations also include the duty to:

• preserve and safeguard the trust property and assets;
• distribute trust property and assets in accordance with the terms of the trust deed;
• act in good faith and in accordance with their fiduciary duties for the benefit of the beneficiaries;
• act personally and not delegate their responsibilities, except as exempted under the trust deed;
• keep accounting records (e.g. statements, account information and tax reports);
• communicate with beneficiaries and provide information when requested; and
• not be deceitful or personally benefit from the trust.

While the duties to act in good faith, preserve trust property, and other obligations have been explored in great detail (and are frequently considered by the courts), the fundamental duty to exercise discretion is often overlooked.

THE OWIES CASE

The Victorian Court of Appeal considered the topic of trustee discretion in the administration of a discretionary trust in Owies v JJE Nominees Pty Ltd [2022] VSCA 142 (‘Owies’). This decision remains the leading Australian authority on this issue and has not been disturbed on appeal.

This case considered many long-established principles concerning family trusts and, in particular, looked at a trustee’s obligation to exercise “real and genuine consideration” in the exercise of their discretion.

By way of background, John and Eva Owies had three children – Michael, Deborah and Paul. In 1970, John and Eva set up a discretionary trust for the benefit of themselves and their children as primary beneficiaries and appointed their company JJE Nominees Pty Ltd (‘JJE’) as trustee. Over the course of almost a decade, trust income was distributed as follows: John (40%), Michael (40%) and Eva (20%), with Paul and Deborah receiving no distributions.

Paul and Deborah later commenced proceedings concerning the distribution of trust income between 2010 and 2019, claiming the trustee failed to give “real and genuine consideration” to them as beneficiaries of the trust. They also sought the removal of JJE as trustee.

The Court of Appeal held that the trustee had failed to give real and genuine consideration to the interests of Paul and Deborah as primary beneficiaries. In reaching this decision, the Court took into account:

• the fact that the trustee did not make any enquiries or speak with Paul or Deborah to determine their circumstances and needs, noting that Deborah had numerous medical conditions and had faced financial difficulties at multiple times throughout her life;
• the settled pattern of uniform distribution, which suggested the trustee was not properly exercising its discretion; and
• the “remarkable” 2019 distribution of 100% of trust income to John, who was 96 years old at the time.

Accordingly, distributions made from 2015 to 2019 were held to be voidable and the trustee was removed.

TAKEAWAYS – REAL AND GENUINE CONSIDERATION

Trustees should take note of the following principles highlighted by Owies before making any distributions:

1. A trustee’s discretion is not unlimited nor necessarily unfettered.
2. Discretion must be exercised in accordance with the terms of the trust deed and its overarching purpose.
3. Trustees should personally and frequently seek out relevant information about beneficiaries’ circumstances to ensure they give proper consideration to beneficiaries’ interests and needs.

THE TRUSTS ACT 2005 (QLD): WHAT’S CHANGED FOR TRUSTEES

Since this article was first published, Queensland has overhauled its trust law for the first time in more than 50 years. The Trusts Act 2025 (Qld) received assent on 19 May 2025 and commenced on 28 April 2026, replacing the Trusts Act 1973 (Qld). For Queensland trustees, three changes matter most alongside the common law duties discussed above:

• Codified minimum duties: for the first time, Queensland statute sets out baseline trustee duties — to act honestly and in good faith, to exercise care, diligence and skill (a higher standard applies to professional trustees), to act for the benefit of the beneficiaries, and to keep accurate records that beneficiaries can inspect on request.
• Broader trustee powers: trustees now have “all the powers of an absolute owner” of trust property, subject to their fiduciary duties and the trust deed, a significant expansion from the more restrictive 1973 Act.
• Higher advancement limit: the cap on advancing trust funds for a beneficiary’s maintenance, education or advancement has increased from $2,000 to $100,000.

These statutory duties sit alongside, rather than replace, the common law duty to give real and genuine consideration confirmed in Owies. In practice, a Queensland trustee now needs to satisfy both: the codified Trusts Act 2025 duties, and the common law standard of genuinely turning their mind to each beneficiary before making a distribution.

RAMSDEN LAWYERS – HOW WE CAN HELP WITH TRUSTEES

Trustees must ensure that discretion is exercised with caution and not blindly. A trustee must make sufficient enquiries so that they may give real, accurate and genuine consideration to the beneficiaries of a trust, since failing to do so may mean distributions are treated as void or, in some cases, lead to the trustee’s removal. Queensland trustees also now need to ensure their practices align with the codified duties under the Trusts Act 2025.

If you are seeking legal advice or assistance with your appointment as a trustee, need advice concerning your trust, or want to check your trust deed and processes against the new Trusts Act 2025, Ramsden Lawyers can assist. Our estate and business succession planning team is happy to arrange an obligation-free initial consultation to help you navigate the procedures set out under the relevant legislation for your circumstances. If you’re reviewing your own Will or broader estate plan alongside your trust structure, our Queensland wills and estates team can help with that too.

The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice about your circumstances should be sought.