When can a Court overturn a discretionary trustee’s decision?
Date: 21 October 2026
Authors: Catherine Ballantyne - Genuine People
A Court may set aside a discretionary trustee's decision where the trustee acts in bad faith, fails to give real and genuine consideration to the exercise of its discretion, or acts for an improper purpose. A beneficiary's disagreement with the outcome is not, by itself, enough.
Trani v Trani [2018] VSC 274 illustrates when the Court will intervene. Two brothers caused a corporate trustee to distribute approximately $1.36 million to themselves, excluding their sister. The Court found that hostility towards their sister had improperly influenced the decision.[1]
The facts
- The parents ran a pizza business in Brunswick. After selling the business, they retained property investments and later transferred property assets into a discretionary family trust.
- Their three adult children, two brothers and a sister, were beneficiaries of the trust and directors of its corporate trustee. Only one brother was a shareholder of the trustee company.
- The family relationship deteriorated following a dispute concerning their mother's funeral. The brother who controlled the trustee company's shares subsequently removed his sister as a director.
- The brothers sold the trust's properties and caused approximately $1.36 million to be transferred to accounts held by them, leaving their sister out of that distribution.
- They sought to wind up the trust, and the corporate trustee was deregistered.
The sister applied to the Court to challenge their actions.
What the Court decided
The Court found that the decision to exclude the sister was motivated by bad faith and that the trustee had failed to give real and genuine consideration to her position as a beneficiary.
The brothers' hostility towards their sister was central to that finding. The Court also considered the outcome to be so "grotesquely unreasonable" in the circumstances that it was itself evidence of a breach of duty.
The resolution, as rectified to reflect the brothers' intention to distribute the remaining trust funds to themselves, was invalid.
What this means for trustees and beneficiaries
A discretionary trust can give a trustee broad powers to decide who receives distributions and in what amounts. Those powers must still be exercised in accordance with the trust deed and the trustee's duties.
The decision does not mean that beneficiaries must always receive equal distributions. It demonstrates that personal hostility cannot displace the proper exercise of a trustee's discretion.
Frequently asked questions about challenging a trustee's decision
Beneficiaries are entitled to have the trust properly administered and its powers exercised in good faith and for proper purposes. They may seek Court intervention to prevent misappropriation or address a breach of trust.
Beneficiaries may also be entitled to inspect trust documents. The scope of access depends on the documents, the trust deed and the circumstances; it is not an unrestricted right to every document or to the trustee's reasons.
Generally, no. In a discretionary trust, the trustee ordinarily decides whether to make a distribution, to whom and in what amount, subject to the trust deed and its duties.
Being a beneficiary does not usually give a person a fixed entitlement to a distribution or an equal share of trust assets.
A Court may intervene where a trustee:
- acts in bad faith;
- fails to give real and genuine consideration to the exercise of its discretion; or
- exercises its powers for an improper or ulterior purpose.
The Court does not ordinarily substitute its own preferred distribution simply because a beneficiary considers the trustee's decision unfair.
A discretionary trustee is generally not required to disclose its reasons for exercising a distribution discretion. The position should be assessed against the trust deed and the circumstances.
That protection does not prevent the Court from examining relevant surrounding circumstances when deciding whether the trustee has acted properly.
Bad faith may be inferred from the surrounding circumstances, including the history of dealings, communications and the circumstances in which a distribution was made.
However, a trustee's failure to give reasons does not, by itself, establish bad faith. In Trani v Trani, the Court considered the wider evidence, including the brothers' hostility towards their sister and their approach to excluding her.
No. A discretionary trust may permit distributions to some beneficiaries and not others. The question is whether the trustee has exercised its powers properly, having regard to the trust deed and its duties.
In Trani v Trani, the problem was the improper exercise of discretion in the particular circumstances, rather than a general rule requiring equal distributions.
Advice on trust disputes
If you have a dispute concerning a trust or a trustee's decision, obtaining advice early can help you understand your rights and options.
Catherine Ballantyne, Practice Group Leader of the litigation team at Hunt & Hunt, is well placed to advise. Contact Catherine at [email protected].
[1] Trani v Trani [2018] VSC 274.
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