Foley v Gleeson and Ors [2013] QSC 234
The Supreme Court of Queensland was asked to interpret the correct meaning and effect of the terms of trust created under the deceased’s Will. Who were the beneficiaries and what was the extent of the trustees discretion to make payment to the different classes of beneficiaries?
The deceased executed his Will on 25 June 2010. Pursuant to the terms of the Will, the deceased bequeathed property to the trustees to hold upon trust for the deceased’s sister as the primary beneficiary and certain other relatives as secondary beneficiaries "as the trustees shall in their absolute discretion determine."
As the sister of the deceased had dementia (a fact that was known to the deceased when making his Will), the deceased named his sister as a beneficiary of the trusts created under his Will.
The sister, represented by her guardians, sought information regarding the money held in trust and requested that funds be released for her ongoing maintenance, benefit and care.
The solicitors acting on behalf of the trustees stated that the deceased’s sister had "no absolute entitlement to the funds" despite being named as a trust beneficiary and that therefore they had no obligation to release any of the funds to her.
Proceedings were then commenced to determine who was entitled to the funds and the extent of the trustees discretion to release funds.
The trustees submitted that the sister should not receive any distribution as the deceased did not trust her guardians and would not have wanted them to access the money on her behalf. As the terms of the trusts did not contain any words to that effect, the argument failed as:
- the Will gave the trustees a general power to make payments to a guardian of a beneficiary where such beneficiary was suffering from an incapacity.
- by naming his sister as a primary beneficiary, the deceased clearly intended that she would receive a benefit from his estate.
The Court considered the wording of the trusts carefully and in particular considered the deliberate distinction between primary and secondary beneficiaries. The Court held that the distinction between the classes of beneficiaries demonstrated the testator’s intention for each class of beneficiary to have a different status and priority. The trustees therefore had an obligation to consider the needs of the primary beneficiary in comparison to the secondary beneficiaries.
The Court found that the sister was clearly entitled to receive a distribution from the trust and that the trustees had an obligation to consider her needs as the primary beneficiary of the trust. The sister did not however, have an unqualified and unconditional interest in the funds and the trustees did also have the power and discretion to make payments to the secondary beneficiaries.
Despite that discretion the trustees had a duty to exercise it in good faith. In doing so, the trustees must give a real and genuine consideration to the affairs and circumstances of all the beneficiaries, particularly those of a primary beneficiary.
Comment: This case reflects the importance of clear and careful Will drafting to ensure that the intentions of the Willmaker are fulfilled - for example, to state that appropriate distributions are made.
This case also provides guidance to trustees when given the power to make distributions in their absolute discretion. Whilst a trustee may have the ability to made distributions of capital and income to a range of beneficiaries, it is important to note that the trustee’s discretion is exercised carefully and with proper consideration of the needs of the beneficiaries.
