A family trust settled in 2004. The deed came from a template. Nobody has looked at it since. These are the five defects we find most often, and each one has its own consequences.
1. Appointor succession dead-ends
The appointor dies. The named successor has also died. The deed contains no failsafe mechanism for appointing a replacement.
The trust is now stuck. Nobody can remove or replace the trustee, and control of the structure has effectively been frozen. The only fix is an application to the court. In Mak v Juventus Pty Ltd [2024] WASC 409 the court had to work through exactly this problem to determine who held the relevant powers.
What to check: who is the appointor, who succeeds them, what happens if that person has died or lost capacity, and whether the power can be dealt with by will.
2. The deed does not define income
In FCT v Bamford [2010] HCA 10 the High Court confirmed that the deed’s definition of income prevails. That is excellent news if the deed has one.
Where there is no definition, income takes its ordinary meaning, which does not include capital gains. A $500,000 capital gain then cannot be distributed under the income clause at all. The trustee is assessed on it.
What to check: whether the deed defines income, whether that definition picks up capital gains and other statutory amounts, and whether the trustee has a power to determine what is income.
3. The default clause does not create a present entitlement by 30 June
If the trustee does not resolve by 30 June, the default distribution clause is meant to catch the income. Many do not do so effectively.
Where the default clause only operates after the end of the year — on determination of the accounts, for example — there may be no present entitlement at 30 June at all. The trustee is then assessed under section 99A of the Income Tax Assessment Act 1936 at the top marginal rate. BRK (Bris) Pty Ltd v FCT [2001] FCA 164 is the textbook illustration.
What to check: when the default clause operates, whether it operates automatically, and who it distributes to.
4. The beneficiary class is too wide
Every relative, their spouses, and their descendants. Drafted for flexibility, and it does provide it.
It can also sweep in foreign persons. Where the trust holds residential land, that can make the trustee a foreign person for surcharge purchaser duty and foreign person land tax purposes — even where no foreign beneficiary has ever received anything. In some jurisdictions that adds several percentage points to a transfer, and an annual surcharge on top.
What to check: whether the class can include foreign persons, and whether an irrevocable exclusion amendment is needed and when it must be made.
5. No streaming power
The legislation permits streaming of capital gains under Subdivision 115-C and franked distributions under Subdivision 207-B — but only where the beneficiary is specifically entitled to the relevant amount.
Specific entitlement requires the trustee to have, and to exercise, a power to make a beneficiary entitled to a particular class of income. If the deed contains no streaming clause, the proportionate approach in Greenhatch v FCT [2012] FCAFC 84 applies and gains cannot be directed to the intended beneficiary.
What to check: whether the deed contains a streaming power, and whether the resolutions actually exercise it.
The deeper problem
These are not edge cases. They are standard features of inexpensive, off-the-shelf deeds that were never tailored to the family or the assets.
A review checklist
- Pull the deed — and every variation and deed of amendment since. Read them together.
- Check appointor and guardian succession. If it dead-ends, fix it now, while there is still someone with power to do so.
- Confirm the income definition accommodates capital gains post-Bamford.
- Test the default clause: does it create a present entitlement by 30 June?
- Check whether the beneficiary class includes foreign persons.
- Check for a streaming power. If there is none, consider amendment, or an application under the relevant trustee legislation.
- While you are there, find the vesting date.
The practical point
Every one of these is cheaper to fix while the trust is functioning normally than to argue about after an assessment, a death or a dispute. The review is a short piece of work. The consequences of not doing it are not.
References
- Mak v Juventus Pty Ltd [2024] WASC 409
- FCT v Bamford [2010] HCA 10
- BRK (Bris) Pty Ltd v FCT [2001] FCA 164
- Greenhatch v FCT [2012] FCAFC 84
- Income Tax Assessment Act 1936 (Cth), s 99A; Income Tax Assessment Act 1997 (Cth), Subdivisions 115-C and 207-B
This article is general information only. It is current as at 16 March 2026 and the law may have changed since. It is not legal or tax advice, does not take account of your circumstances, and must not be relied upon as a substitute for advice on your own matter.