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Do Trust Laws allow a Trustee to be the Sole Beneficiary of a Discretionary Trust?
 
 
   

Do Trust Laws allow a Trustee to be the Sole Beneficiary of a Discretionary Trust?

News | Mehak Gaba | Released: 09/04/2025 | Read: 3 Mins
   

Trust law is governed by a set of complex principles, obligations, and rules. Determining what a trustee can and cannot do can often be difficult, especially in situations where conflicting roles arise. 

 

A common question posed in relation to discretionary family trusts is whether a sole trustee of the trust can also be the sole beneficiary. The answer to this question has legal implications and is crucial to understanding the dynamics of trust management. This article will explore the key concepts involved and clarify the legal boundaries surrounding this issue.
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Understanding Trusts and Roles of Trustees & Beneficiary
   

A trust is a legal arrangement where a trustee holds and manages property for the benefit of a beneficiary. The powers and duties of the trustee are typically outlined in the trust deed.

  • Trustee’s Role: The trustee is responsible for managing the trust's assets and ensuring they are distributed according to the terms outlined in the trust deed. The trustee has the discretion to decide which beneficiaries will receive trust assets and in what proportions. 

  • Beneficiary’s Role: The beneficiaries of the trust are the individuals or entities who benefit from the trust's assets. The trust deed may specify an "initial list of beneficiaries," which usually includes family members or other close associates of the settlor.

However, the flexibility of the trustee role in eciding how to distribute the trust's income and capital among beneficiaries raises concerns when a single entity or individual holds roles of trustee and beneficiary.

 
   

Can a Trustee be the SOLE Beneficiary of a Discretionary Trust?

 
   

The short answer is "NO" , 

a trustee cannot be the SOLE beneficiary of a discretionary trust. when a sole beneficiary also becomes the sole trustee of a trust.

 

Legal Consideration(s):

  1. Invalid Trust: In the case of Adamstoun Holdings Pty Ltd v Brogue Tableau Pty Ltd ([2011] WASCA 191), the court ruled that when one individual or entity holds both the legal and beneficial interests, the trust may become “invalid”. This is because a person cannot hold trust property "on trust" for their own benefit, as it undermines the basic principles of trust law, leading to the extinguishment of the trust. 

  2. Banking and Lending Concerns: Banks and financial institutions are cautious about lending to a trust where the trustee is also the sole nominated beneficiary. This arrangement can present higher risks, particularly regarding mismanagement or improper distributions of trust assets. 

  3. Conflict of Interest and Breach of Fiduciary Duty: Trustees are fiduciaries with a duty to act in the best interest of all beneficiaries. If the trustee is also the sole beneficiary, fulfilling this duty impartially becomes difficult. There is a risk that the trustee may prioritize their personal interests over others, even if other beneficiaries are nominal, leading to a breach of fiduciary duty. 

        Scenario: John is appointed as the trustee and sole beneficiary of a discretionary trust. 

  • John holds a valuable family property. 
  • As the sole beneficiary, John wants to sell the property for personal gain, even though the trust    was intended to preserve the property for future generations. 
  • By prioritizing his personal interest over the trust’s purpose, John fails to act impartially and in the best interest of potential future beneficiaries. 
  • This constitutes a breach of fiduciary duty, as John is not fulfilling his duty of loyalty and impartiality as trustee. 

      4. Potential for Litigation and Disputes: When a trustee is also the sole beneficiary, it increases the                likelihood of future litigation or disputes. For instance, if the trust were challenged in the future by other            potential beneficiaries or parties who believe they have a legitimate claim, the fact that the trustee is                the sole beneficiary could raise suspicions about the fairness of the trust’s administration. This could              lead to prolonged legal battles, legal costs, and damage to the trustee’s reputation.
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What steps should you take if you want to be both trustee and beneficiary? 

 
   
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If you are considering taking on both roles, it’s important to follow these steps to ensure compliance and effective management of the trust:

  1. Include multiple beneficiaries to ensure impartiality: To mitigate potential conflicts of interest, it is advisable to include more than one beneficiary in the trust deed. This helps avoid the scenario where the trustee has sole discretion over trust assets, reducing the risk of abuse and ensuring the trust remains legally valid.
  2. Consider alternative Trust Structures: One possible solution is to establish a corporate trustee structure. In this case, a company could act as the trustee, with a single director who is also the sole beneficiary. This structure helps maintain the separation of legal and beneficial ownership, ensuring compliance with fiduciary duties.
  3. Review the Trust Deed: It is critical to review the trust deed carefully to ensure it allows for the trustee to also act as a beneficiary. The deed should clearly outline any permissible roles and provide specific guidelines to avoid conflicts of interest and potential breaches of fiduciary duty.
  4. Seek Professional Legal Advice: Consulting with a qualified solicitor is highly recommended to ensure the trust is structured in compliance with the law. A legal professional can provide valuable guidance on how to manage the dual roles of trustee and beneficiary while addressing any potential legal complications that may arise.
   
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Conclusion
   

In conclusion, trust law generally does not permit a trustee to be the sole beneficiary of a discretionary trust, as this would create an invalid trust. A trustee can, however, be a beneficiary as long as there are additional beneficiaries involved. Trustees must always adhere to their fiduciary duties and act impartially to avoid conflicts of interest. When structuring a trust, careful consideration should be given to the roles of the trustee and beneficiary, and alternative structures should be considered to ensure the trust is legally valid and effectively managed.
   

Inclusion of All Relevant Provisions in our Trustdeed 
   

ln managing  a discretionary trust, it is essential to understand the governing framework set by the trust deed.  Our trust deed has been updated in accordance with current trust laws to ensure full compliance and to reflect any changes in legal requirements. The deed clearly defines the roles and responsibilities of all the parties involved. 
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tghgbn
 

Visit www.trustdeed.com.au for more details or call us on (02) 9684 4199
   

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