Trustee directions - Making applications to the Supreme Court

Key points

  • If you are a trustee or executor, you can apply to the Supreme Court for 'trustee directions'.
  • We can act for you to make the application.
  • Seeking directions reduces your risk as the trustee or executor. 
  • A trustee who acts under the direction is indemnified against any subsequent loss which arises.

Trusts

Compared to directly gifting legal ownership of assets to an intended beneficiary, providing a gift of assets via a discretionary trust over which the intended beneficiary has direct or indirect control provides many advantages.

Discretionary trusts may be drafted to impose obligations, conditions and restrictions upon the trustee to provide long term care for a beneficiary who has a physical or mental handicap, is a spendthrift, has poor judgmental capacity, or has an addiction to drugs or alcohol.

Trusts are also being increasingly incorporated into modern wills:

  • to deal with modern family situations, where the person has had more than one marital or de-facto relationship and has children from a previous relationship;
  • where certain beneficiaries have a mental or physical disability and require provision for special care;
  • where the person wants to protect estate assets because of concerns about the beneficiary's financial circumstances (for example the beneficiary appears likely to go bankrupt); or
  • to enable intended beneficiaries to receive their inheritances in the most flexible, tax effective and asset protective manner possible. 

Overview of seeking trustee directions

A trustee is obliged to administer the assets of the trust in accordance with the terms of the trust instrument and for the benefit of the beneficiaries. An executor, whilst in possession of the deceased estate, also carries the role of trustee of the estate for the benefit of the will beneficiaries and is subject to the usual obligations and demands of trustees as set out by the legislation.

Trustees have many basic duties which require them to, amongst others:

  • acquaint themselves with the terms of the trust and the nature of the trust property
  • to comply with the terms of the trust;
  • obtain possession of the trust property and ensure that the title to the trust property is vested in the trustee;
  • exercise the powers of the trust in the best interests of the beneficiaries, present and future;
  • to preserve and protect the trust property
  • not invest trust funds in investments that are speculative or hazardous;
  • act impartially towards beneficiaries; and
  • to take advice.

These duties can impose onerous obligations on trustees, including being required to commence legal proceedings to recover trust property or debts owed. This is particularly so where the trust assets include multiple properties or require the trustee to invest trust funds.

Breach of any of these duties can result in the trustee being personally liable for any loss caused by the breach.

Therefore, the Trustees Act 1962 (WA) and Administration Act 1903 (WA) each contain provision for trustees to seek directions from the Court for the best course to take.

Common types of applications are for directions in relation to:

  • the construction of the will or trust instrument;
  • advice or directions from the court about a course of action to be taken; and
  • trustee remuneration and commission.

Legal Basis

The Trustees Act 1962 (WA) s 92 allows trustees or persons with a beneficial interest in the trust to seek directions from the Supreme Court relation to matters concerning the trust property, or the management or administration or the trust, or the exercise of any power or discretion vested in the trustee.

The purpose of the provision is to enable trustees to take advice before embarking on a course of action which might carry a risk of incurring costs that the trustee is not indemnified against (Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42).

If the trust arises otherwise in the administration of the estate, the trustee can ask the court to settle any question as to the administration of the estate under s 45 of the Administration Act 1903 (WA).

Section 94 of the Trustees Act 1962 (WA) also allows a person with an interest (direct or indirect) in any trust property to apply to the Court to review the actions of the trustee or give directions in relation to the actions of the trustee, or require the trustee to explain their actions to the court.

Risks of not taking directions

Trustee powers include the power to:

  • commence or defend legal proceedings;
  • sell (or not sell) assets;
  • apply income and/or capital for the maintenance, education, advancement or benefit of any beneficiary, as well as the power to make payments to a guardian or other person with whom a minor beneficiary resides;
  • purchase property;
  • acquire, develop, subdivide or improve any land;
  • lease or rent out any asset;
  • borrow or raise monies;
  • take out insurance policies in respect of any assets and/or beneficiaries; and
  • carry on a business;

amongst other things.  

The broad scope of these powers gives rise to a large potential for mismanagement of trust property, or trustees powers, which can then lead to the trustee being personally liable for any losses caused.

A trustee should take no step in defending a proceeding without first obtaining directions. Therefore, a trustee who takes action without first obtaining advice does so at their own risk (Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42).

Benefits of seeking directions

The main benefit of seeking trustee directions lies in being indemnified against any costs incurred as a result of acting in accordance with the directions.

A trustee who acts under the direction of the Court, is deemed to have discharged their duties and may be indemnified against any subsequent loss which arises (Trustees Act 1962 (WA) s 95).

This means that if a trustee seeks directions from the Court, and then acts on those directions, unless the trustee acted fraudulently in obtaining the directions they are likely to be indemnified against any losses which might arise.

Therefore, it is prudent, if in doubt, to seek legal advice about applying to the Court for directions to safeguard you from incurring personal liability for losses arising from a particular course of action.

Costs

The Court has jurisdiction to order that costs incurred in seeking trustee directions are paid out of the trust property, or, such persons as the Court thinks fit (Trustees Act 1962 (WA) s 97).

A trustee is generally entitled to be indemnified if the appropriate approach and procedure is followed (see Wood (as Co-Executor and Trustee of Will of Decd) v Wood (No 5) [2015] WASC 28).

The corollary is that a trustee who does not pursue the appropriate approach may not be able to recoup their expenditure out of the trust property.

Are you an “executor support” organisation?

Executor support organisations involved in:

  • estate planning
  • executor assistance;
  • probate applications;
  • estate and trustee services;
  • attorney services; and
  • other agency services;

may require legal advice to assist with applications for directions or other matters including commencing or defending legal proceedings on behalf of the estate.

Bankruptcy

Section 77 of the Trustees Act allows the court to remove and replace a trustee who has become bankrupt.

Trustee provisions can be included in a will to either endorse this so that a Trustee is automatically removed if they become bankrupt, or alternately, to allow a Trustee to continue acting even if they are bankrupt.