Queensland’s New Trusts Laws – Are you ready for the changes?

Application

The Bill, once enacted, will apply to trusts whether created before or after the commencement date, so that the Existing Act will cease to have continuing effect.

As with the Existing Act, the Bill will apply to personal representatives of deceased estates, as well as trustees, unless a relevant provision states otherwise. The Bill will apply equally to testamentary trusts.

In a reversal of the position under the Existing Act, the Bill will override any conflicting provision in a trust instrument (unless, for a particular trustee power or other matter, the Bill specifically permits the trust instrument to take priority).

Under the Existing Act – a position mirrored in other jurisdictions – the legislation is subject to the trust instrument (except for where the legislation, in a particular provision, expressly states it overrides the trust instrument).

Under the Bill, the trust deed may confer additional powers on a trustee and expand on particular provisions in the Bill, but generally cannot reduce or exclude their operation.

Number and identity of trustees

Section 14 of the Bill limits the number of trustees to four (other than for charitable trusts and SMSF trusts), unless a court order is obtained. The limit to four trustees is also applied under the Existing Act, but there is no exclusion for SMSF trusts, nor is there provision for the court to approve additional trustees.

Further, section 13 introduces specific exclusions on who is eligible to act as a trustee: a child, a person who is bankrupt or undergoing a personal insolvency process, a person disqualified by court order from acting as a trustee, and a company subject to an insolvency event.

This provision does not apply to personal representatives. Accordingly, children and bankrupt persons will not be automatically ineligible for appointment as executors and administrators. However, it may be that once the administration of an estate is complete, a personal representative who is not permitted to be appointed as trustee could be disqualified from continuing to hold property as a trustee for the estate and must be replaced.

Replacement of trustees

It is common for a trust deed to provide for the office of an “appointor”, who has the power to appoint, remove and replace trustees. The deed typically provides how that power can be exercised and how the office passes to a successor.

The Existing Act specifies a range of “default” circumstances in which the power can be exercised – such as when the trustee refuses to act, is unfit to act, is incapable of acting, is dead, or remains out of the State for more than a year without properly delegating their powers. The power can be exercised by the last continuing trustee (if any) if there is no appointor under the trust.

These default circumstances are largely carried over to section 20 of the Bill, with additional insolvency-based events.

However, the Bill introduces significant changes to the appointment of trustees in particular circumstances:

1. Under section 21, where the last surviving trustee has died and there is no appointor, or the appointor is not “able and willing to act” within a “reasonable period” after the death of the last trustee, the personal representative of the last trustee may appoint a new trustee, including themselves (unless excluded by the instrument).
2. Under section 22, where the last continuing trustee has impaired capacity and there is no appointor under the trust (or no appointor able and willing to act within a “reasonable period”), the administrator or financial attorney of a person who has impaired capacity is authorised to appoint a new trustee.¹ Unlike most provisions in the Bill, this section can be overridden by the trust instrument.

These provisions substantially change the field in a number of ways. First, while the Existing Act also permits a personal representative of the last surviving trustee to appoint a new trustee where an appointor is not “able and willing to act”, there is no definition of “able and willing”, and there is no condition requiring an appointor to act within a “reasonable period”. In contrast, under the Bill, not being “able and willing” is defined in section 18 to include where the appointors are unable to reach a unanimous decision. This opens the door to outside parties having significant powers to appoint a trustee where an appointor cannot reach a decision (within an undefined “reasonable period” of time), and this outcome cannot be excluded by the trust instrument.

These same concerns apply in the context of an appointment by an administrator/financial attorney where the last continuing trustee has impaired capacity. This is a new power under the Bill, with no equivalent in the Existing Act. Under the Existing Act, a court application would be required to appoint a replacement trustee in these circumstances (relying on guardianship or powers of attorney legislation). The Bill removes the necessity for a court application. While this may save costs and enhance efficiency in the administration of trusts, it may also expose vulnerable individuals and reduce their protection due to the absence of court oversight.

Trustees’ duties

Outside of a duty to act with reasonable care, diligence and skill in exercising a power of investment, the Existing Act does not prescribe the general duties owed by a trustee (save in relation to trust investments) and provides that most duties at law can be limited or varied by the trust instrument. Compare this with section 52 of the Succession Act 1981 (Qld), which provides specific duties of a personal representative, as well as legislation applying to superannuation trustees.

The Bill now provides for minimum mandatory duties for all trustees to act with reasonable care, diligence and skill in exercising any power (section 62) and to act honestly and in good faith for the beneficiaries, or the purposes of the trust in the case of a charitable trust (section 63).

While largely mirroring the existing case law position, these provisions enhance certainty, and entrench the expectation that there are core, irreducible duties that cannot be “contracted out of” in the trust deed. This is especially useful in the case of discretionary trusts, where we have commonly seen disputes raised as to the scope of the duties owed by a trustee where they have absolute discretion in relation to a decision (often the distribution of trust income and capital to beneficiaries).

A potentially significant change is the setting of a minimum standard of care for a trustee (in complying with the overarching duty to act with reasonable care, diligence and skill). Section 62(2) requires a trustee to act with the degree of care expected of a “prudent person of business” in exercising all powers conferred on it.  Further, this standard cannot be excluded by the trust instrument.

Under the Existing Act – and the legislation in other jurisdictions – this standard of care is only specifically applied in the exercise of a trustee’s power of investment. The trust instrument can (and usually does) limit trustees’ liability for a breach of trust to circumstances of negligence, wilful default or fraud, and inadvertent mistakes will not result in a breach.

This may no longer be the case if it can be considered a “prudent person of business” would not have made the mistake – a standard that, under the Bill, now applies beyond investment powers to other matters such as the use of agents and nominees, insurance against risk, acquiring and managing land, conducting litigation or compounding liabilities, and seeking advice.

The introduction of a standard of care for all trustees to the level of a “prudent person in business” may result in greater instances of liability for trustees, and the inability to rely on exemption clauses in some circumstances.

The standard of care is enhanced in the case of professional trustees (section 60) and those holding themselves out to have a special skill (section 61) – in each case, being that of a prudent person in the relevant profession, or having the relevant special skill.

The Bill does not clarify other areas of uncertainty and continued development in the case law, such as the extent to which a trustee must make proper enquiries as to the circumstances of all beneficiaries before making a distribution under a discretionary trust. As we noted in a previous article t, in Re Owies Family Trust,² the Victorian Court of Appeal held that, to properly discharge its duty to actively exercise its discretion, a trustee must at least make enquiries as to the personal and financial circumstances of all beneficiaries, and take these circumstances into account, before allocating income or capital in any income year.

Importantly, the Bill also now provides for the first time in Queensland a specific duty for trustees to keep accurate records and accounts, which must be retained for at least three years after termination of the trust (section 64). There is also a right for all beneficiaries (including potential beneficiaries) to inspect and copy these records and accounts, unless a request to do so is unreasonable under the circumstances (section 65). This provides a simple accountability and access regime that will enhance transparency and minimise the need for a court application compelling access to documents in reliance on beneficiaries’ limited general law rights.

Trustees’ powers

Section 32 of the Existing Act sets out a convoluted list of specific powers that all trustees have in relation to any trust property. The drafting of many of these provisions is outdated, and has created some confusion in assessing whether the exercise of a power over trust property is properly caught by the Existing Act (and there are no express powers in the trust deed).

Trustees’ powers have been simplified under the Bill, with section 82(1) now giving all trustees the powers of an absolute owner in relation to trust property.  Specific non-exclusive examples are then provided in section 82(2), such as sale and leasing powers. This avoids the artificial exercise of trying to “fit” the exercise of a power within the archaic wording of section 32 of the Existing Act.

The Bill also further expands trustees’ broad power over trust property in:

• removing the $10,000 limit on the amount a trustee is permitted to spend on the improvement or development of trust property without court approval (section 85); and
• building on a trustee’s right to apportion expenditure between income and capital and recoup capital from subsequent income (where payment has been made out of capital) in section 33(1)(g) of the Existing Act, now also permitting a trustee to recoup income from capital when expenditure has been made out of income that is deemed to be of a capital nature (section 86).

These provisions maximise flexibility in the exercise of a trustee’s discretion, and avoid impediments to the efficient conduct of a trading trust.

Further, while trustees in general have a broad power to postpone the sale of trust assets indefinitely (section 83), the Bill inserts a new section 49B in the Succession Act 1981 (Qld). This limits the time for a legal personal representative to carry on a deceased’s business forming part of the estate to two years (subject to extension by the court), and only to the extent necessary to realise the business. This will ensure greater speed and finality in estate administration, though may cause administrative issues, expense, and potential liability for personal representatives who are unable to resolve a business in that timeframe.

Maintenance, education and advancement

The Bill expands trustees’ powers to apply income and capital of the trust in favour of minor beneficiaries. Section 124 clarifies that these powers can be exercised irrespective of whether a beneficiary’s interest is vested, contingent, future, absolute or liable to be divested. Section 125 provides that a trustee must accumulate any unused income from a minor’s trust entitlement, although this can be excluded by the trust instrument.

In relation to capital, sections 128 and 130 of the Bill increase the amount that can be used from capital of the trust to provide for maintenance, education or advancement of a beneficiary from $2,000 to $100,000 (to be adjusted annually in accordance with the CPI), or one-half of the capital.

Notice of distribution

Section 135 of the Bill removes the effect of section 67(4)(b) of the Existing Act, so that a trustee does not need to undertake searches similar to those which an intending purchaser would be advised to make before making a distribution of income or capital. A trustee will continue to receive protection against a claim if notice of an intended distribution is provided and the claim is not received within the mandatory minimum notice period – now increased to two months rather than six weeks.

Sections 138 to 140 also expand the circumstances in which a trustee can seek to have a claim barred, so that if the trustee “does not accept” a foreshadowed claim, the trustee can serve a notice on a person with such a claim requiring them to issue proceedings within six months, failing which the trustee can apply to the court to seek orders barring the claim. Barring orders now also expressly extend to not only the trust estate and the trustee personally, but also beneficiaries.

Expanded role of the court

The Bill significantly expands the court’s supervisory role in relation to trusts:

• he court now has, for the first time, the power to remove and replace officeholders other than trustees, including an appointor (section 169);
• the court can now make any orders relating to trust property upon the application of either the trustee or – in new provisions – any person applying to be appointed as trustee, any person who is beneficially interested in the trust property, or any person in whose favour a power to distribute trust property may be exercised (section 163); and
• the court has enhanced disciplinary powers. It will be able to not only remove a delinquent trustee, but also, in that event, to disqualify the trustee from managing any other trust in future.

The court will also continue to have the power to issue directions upon the application of a trustee (section 184). There is no longer an express requirement for the trustee to support an application for directions with a “written statement of facts”.

Administrative efficiency

Once the Bill comes into effect, the District Court will be able to exercise the same powers that are conferred on the Supreme Court if the value of trust property is $750,000 or less. This is an important change, which will significantly reduce administration costs – and litigation costs in the event of a disputed claim

Other provisions

While this article is intended to draw attention to the primary amendments to the trusts legislation impacting estates, other changes of note include:

• limiting a trustee’s power to delegate the administration or exercise of the trust, powers, authorities and discretions vested in the trustee to 12 months in duration (section 96);
• giving the court the power, on its own initiative or on the application of an interested person, to review and reduce excessive amounts for commission and professional charges charged by a trustee, other than a licensed trustee company or the public trustee (section 161); and
• extending the circumstances in which the purposes of a charitable trust can be modified (under the cy-pres doctrine) to when the existing charitable purpose can no longer be achieved due to prevailing social and economic conditions (section 199).

Reminder about other changes

Section 201 of the Property Law Act 2023 (Qld) (PLA) – which will commence on 1 August 2025 – sets a fixed statutory perpetuity period for trusts of 125 years, up from the previous maximum period of 80 years (the same position as in the United Kingdom). This means a trust can now operate for that maximum period after being established before the trust property must be distributed to beneficiaries (subject to earlier termination if the trust so provides).

Sections 216 and 217 of the PLA also permit existing trusts to be varied (if the trustee has a variation power or if all beneficiaries are adults and of full capacity and agree to the variation) to accord with the new maximum period.

This is significant, as most trusts routinely adopt the existing maximum 80-year period. We advise clients to contact us to review the terms of their trust deeds and make the required changes to extend the maximum operation of the trust. This will delay any potential adverse capital gains tax and duty consequences if the trust automatically terminates at an earlier time.

Takeaways

While the Bill is not a “game changer”, it still introduces important changes to trusts that will impact the administration of estates, including:

• clarifications on the appointment and removal of trustees
• a statutory confirmation of the scope of trustees’ core duties
• the introduction of a standard of care requiring even non-professional trustees (and those who do not have special knowledge or experience) to act to the level of a “prudent person in business”, which may increase trustees’ liability risk
• a simplified outline of trustees’ powers – with extended powers as to the application of income and capital, and the use of trust funds for maintenance, education and advancement
• new procedural timeframes – such as a limited two year period for a trustee to conduct the business of a deceased estate and a longer minimum notice period before distributing trust funds (now two months)
• the power for the District Court to determine trusts matters with a value of $750,000 or less, which will enhance the expediency and effective administration of trusts.

If you would like to discuss any of these issues in further detail, please get in touch with Brett Heading, Fran Becker, Jamie Blair, Jack Conway or Penelope Nicholls.

¹Usefully, there is also now a specific definition of when a person is considered to have “impaired capacity” in section 10 of the Bill – i.e. when the person is incapable of understanding the nature and effect of their decisions about a matter, of freely and voluntarily making decisions about the matter, and communicating the decisions. This accords with the definitions under Queensland’s guardianship and powers of attorney legislation (the Guardianship and Administration Act 2000 and the Powers of Attorney Act 1998).

²[2022] VSCA 142.