Should guardians be fiduciaries in family trusts?
Architects of family and discretionary trust deeds must carefully consider whether the guardians they appoint will be fiduciaries to avoid the risk of the guardians being removed by courts in cases of conflict and deadlocks, according to a lawyer.
Townsends Business and Corporate Lawyers superannuation special counsel, Michael Hallinan, referred to a case delivered by the Supreme Court of Western Australia in March this year, to note that it had never been considered whether a Court could remove the guardian of a trust until this case.
In the case of Blenkinsop v. Blenkinsop nominees as trustee for the Blenkinsop family trust, all guardians were required to act unanimously and each was also a beneficiary. However, an internal dispute between the guardians meant they were deadlocked, due to which one of the guardians applied for the removal of the other guardians to break the deadlock.
However, after reviewing various offshore cases as there was no direct Australian authority, the Court decided that it would only have jurisdiction to remove the guardian if they were a fiduciary where the welfare of the trust was threatened.
"However, in this case, the Court declined the request as the Court considered that the role of the guardians (in the context of the particular trust) was not fiduciary (they could act in their own self-interest) as each guardian was also a beneficiary," Hallinan said.
"The architect of the trust intentionally imposed the requirements of unanimity amongst the guardians as to their power to consent to trust distributions."
Hallinan also said the architect of the trust should put mechanisms in place to resolve conflicts and deadlocks where the guardian was not the fiduciary.
While the Court acknowledged that the requirement to act unanimously may be impractical and it was possible the guardians would run into similar problems in the future as self-interest of the guardians may have consequences in administering the trust and therefore cost to the estate, it said this is how the trust intended to operate.
"The remedy sought would be a substantial departure from the terms of the trusts, and I am not satisfied that it can be done," the Court ruling said.
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