Who Controls Your Family Trust? Lessons from a Court Battle That Didn't Have to Happen

Family discretionary trusts are one of the most widely used structures in Australian private wealth planning. Flexible, tax-effective, and well-suited to family business succession, they are established by tens of thousands of Australian families each year. But the decisions made when a trust is set up, particularly about who holds which roles and what happens when those people die, retire, or fall out with each other, can have consequences that last for generations.

A 2025 decision of the Queensland Court of Appeal, Staley v Hill Family Holdings Pty Ltd [2025] QCA 95, illustrates with painful clarity what can go wrong when trust governance is not properly thought through at establishment and what it costs when families are left to resolve those questions through litigation instead.

The Hill Family Trust: A Cautionary Account

The Hill Family Trust was established in 2002 by the family patriarch, Mr Hill. A corporate entity – Hill Family Holdings Pty Ltd was appointed as trustee, with Mr Hill and his wife as directors and shareholders of that company. Mr Hill was named in the trust deed as the appointor of the trust. He was also its primary beneficiary. On its face, it was a typical family trust structure. The problem was what the deed said and didn't say about what would happen when Mr Hill died.

Mr Hill died in 2009. He had not nominated a successor appointor under the deed. The trust deed provided that on the death of the last surviving appointor, the legal personal representative of that person would become the appointor. Mr Hill's daughters, Mrs. Staley and Mrs Porter, were the executors of his estate, and so they became the joint appointors of the trust. Meanwhile, Mrs Hill became the sole director and shareholder of the corporate trustee.

In the years that followed, relationships within the family deteriorated. The trustee removed Mrs Staley's sister Mrs Porter and her family as beneficiaries of the trust. After Mrs Hill and Mrs Porter died, control of the corporate trustee passed to Mrs Porter's daughter. And then, in March 2024, the trustee now controlled by one branch of the family executed a deed of variation using the broad variation power in the trust deed to insert a new clause giving the trustee the power to remove and replace the appointor. Having inserted that power, the trustee exercised it: Mrs Staley, who was by then the sole surviving appointor, was removed without her knowledge and replaced with Mrs Porter's daughter.

Mrs Staley did not learn of her removal until she attempted to exercise her own power as appointor to remove the trustee. The Queensland Court of Appeal upheld the deed of variation as valid. After more than a decade of escalating family conflict, the appointor who might have exercised the ultimate safeguard of removing the trustee had that power taken from her by the very trustee she was meant to oversee.

Why Families Use Discretionary Trusts

Before examining the governance lessons of the Hill Family Trust, it is worth understanding what a family discretionary trust is and why it remains such a commonly used structure.

A discretionary trust sometimes called a family trust is a legal arrangement under which a trustee holds assets for the benefit of a class of beneficiaries, with the power to determine, at their discretion, how trust income and capital are distributed among those beneficiaries in each income year. No beneficiary has a fixed entitlement. The trustee decides, year by year, who gets what.

This flexibility creates a range of genuine benefits. Income can be distributed to family members in lower tax brackets, reducing the overall tax paid by the family group. Assets held in the trust are generally protected from the personal creditors of individual beneficiaries, since the beneficiaries do not hold the assets directly. The trust structure can facilitate the orderly transfer of business and investment assets across generations without the tax and fragmentation consequences that direct transfers can trigger. And a well-drafted trust deed can accommodate changes in family circumstances over time, allowing distributions to be adjusted as the family's needs evolve.

For small business owners, property investors, and families with significant accumulated wealth, a family discretionary trust is frequently the cornerstone of a broader structuring and succession plan.

The Key Roles: Who Does What

A family discretionary trust involves several distinct roles. Understanding each role and who should fill it is essential to establishing a structure that will function as intended, not just at establishment but across decades and generations.

The Settlor is the person who establishes the trust by executing the trust deed and contributing the initial settlement sum (typically a nominal amount, often ten dollars). The settlor's role is purely foundational: once the trust is established, the settlor has no ongoing role and should not be a beneficiary of the trust, as this creates a legal risk known as a "sham trust". The settlor is often a trusted third party, a friend or associate of the family, rather than a family member.

The Trustee is the person or entity that holds the trust assets and manages the trust on a day-to-day basis. The trustee makes distribution decisions, manages investments, meets compliance obligations, and executes transactions on behalf of the trust. The trustee's powers and duties are defined by the trust deed and by the general law of trusts. As the Hill Family Trust demonstrates, the trustee is an enormously powerful role, and if the controls on that power are not carefully structured, the trustee can act in ways that disadvantage beneficiaries or undermine the intended governance of the trust.

The Appointor (sometimes called the principal, guardian, or protector) is a role that exists only if the trust deed provides for it. Most well-drafted family trust deeds do. The appointor has the power to remove the trustee and appoint a replacement, meaning the appointor holds the ultimate sanction over trustee conduct. It is for this reason that the appointor is often described as the "true controller" of the trust: while the trustee has day-to-day management, the appointor can dismiss a trustee that acts improperly and install someone else in their place. The Hill Family Trust litigation arose, in large part, because the trustee found a way to turn this mechanism against the appointor and remove her instead.

The Beneficiaries are the persons in whose favour the trustee may exercise its discretion to make distributions. Most family trust deeds define a broad class of discretionary beneficiaries, typically the primary beneficiary (often the person who established the trust), their spouse, their children and grandchildren, and sometimes associated entities such as companies and other trusts. No individual beneficiary has a guaranteed right to receive distributions; entitlement arises only when the trustee makes a distribution resolution in their favour.

Who Should Hold Each Role?

The question of who should be the appointor, trustee, and primary beneficiary is one of the most important and most commonly under-considered decisions in establishing a family trust.

A common approach, particularly among owner-operators of small businesses, is to appoint the primary business owner as both the primary beneficiary and the appointor. This consolidates control in the hands of the person driving the business. It feels intuitive. But it creates a structural risk that the Hill Family Trust illustrates directly: if that person dies unexpectedly without having made provision for who becomes the successor appointor, the appointment mechanism falls back on whatever default the deed provides, which may not reflect anyone's actual intentions.

The position of primary beneficiary and appointor are better separated where possible. The appointor's role is one of oversight and ultimate control; it should be held by someone whose primary interest is in ensuring the trust is properly governed, not necessarily in maximising their own distributions from it. A spouse, an independent trustee, or a professional adviser can perform the appointor function with appropriate independence from the beneficiary pool.

Successor appointors should always be nominated, either in the trust deed or in the appointor's Will, with clear succession mechanisms. The failure to nominate a successor was the root cause of the Hill Family Trust dispute. Had Mr Hill nominated a replacement appointor, or had the deed contained clearer provisions for succession to that role, the litigation that consumed the family for years might never have occurred.

The Problems with the Primary Beneficiary as Trustee

Similarly, placing the primary beneficiary in the role of trustee, particularly as sole trustee, creates tensions that courts and practitioners have long recognised. A trustee owes fiduciary duties to all beneficiaries, not merely to themselves. Where the sole trustee is also the primary beneficiary, the structural incentive is to distribute in their own favour and to manage trust assets for their own benefit, rather than in the interests of the beneficiary class as a whole.

The Victorian Court of Appeal's decision in Owies v JJE Nominees Pty Ltd [2022] VSCA 142 which remains highly relevant to trust governance, found that trustees of a family discretionary trust had breached their fiduciary duties by failing to genuinely consider the circumstances of all beneficiaries before making distributions almost exclusively to the parents of the family, to the exclusion of their adult children. The Court held that trustees cannot simply ignore beneficiaries or distribute on autopilot. A trustee who is also the primary beneficiary faces an inherent challenge in meeting this obligation objectively.

Beyond the fiduciary concern, there is a practical asset protection issue. If the primary beneficiary is also the sole trustee and has effective control over the trust, deciding who receives distributions and when courts and creditors may treat the trust assets as effectively the property of that person, making them available to satisfy personal debts or family law property claims. The protection that a trust structure is intended to provide may be significantly diminished.

The Case for a Corporate Trustee

For most family trusts of any significant asset value, a corporate trustee, a proprietary limited company established specifically to act as trustee, is strongly preferable to an individual trustee.

The Hill Family Trust itself used a corporate trustee, Hill Family Holdings Pty Ltd. The difficulty in that case was not the use of a corporate trustee per se but rather the failure to address succession of control over the corporate trustee alongside succession of the appointor role. When the directors and shareholders of the corporate trustee changed, effective control of the trust changed with them in ways that the original settlor almost certainly did not intend.

A corporate trustee offers several genuine advantages. It does not die. It does not become bankrupt in the same way an individual does, since its assets are held as trustee, not on its own account and its shares can be transferred without disrupting the trust's legal ownership of its assets. It provides a clear separation between the person managing the trust and the trust assets themselves: the company holds the assets, not its directors personally. And its governance can be adjusted through changes to its shareholders and directors in a way that is more flexible than attempting to formally replace an individual trustee.

But a corporate trustee only works as intended if the shareholding and directorship of the trustee company are themselves properly structured. The shares in the corporate trustee should generally not be held by the primary beneficiary directly, this recreates the concentration-of-control problem that the trust structure is meant to avoid. Instead, shares in the corporate trustee may be held by another company, by a holding entity, or by individuals who have a governance role but are independent of the beneficiary pool.

What the Hill Family Trust Teaches Us

Staley v Hill Family Holdings Pty Ltd [2025] QCA 95 is not primarily a case about legal technicality. It is a case about a family that ran a successful business and built a trust structure intended to hold that wealth across generations and then watched that structure become the vehicle for a conflict that consumed years of their lives and resources.

The legal principle the case establishes that a broadly drafted variation power may permit a trustee to remove the appointor matters for practitioners. But the human lesson is simpler. The patriarch who established the Hill Family Trust did not contemplate that his daughters would end up in opposing factions, one controlling the trustee and one holding the appointor role. He did not nominate a successor appointor. He did not limit the variation power in the deed. And when he died, the gaps he left became the fault lines along which the family divided.

Every family trust reflects the intentions and relationships of the people who established it. Those intentions and relationships change over time. A trust deed that made perfect sense in 2002 may contain provisions that generate disputes in 2025. Succession within the trust of the appointor role, of the trustee, and of control over any corporate trustee requires active planning, not assumption.

The questions that should be answered before establishing a family trust and revisited regularly thereafter are straightforward: Who holds the appointor role, and what happens when they die? Who controls the corporate trustee, and does that remain appropriate as the family changes? Are the variation powers in the deed broad enough to be misused, and should they be limited? Are all relevant beneficiaries being genuinely considered in distribution decisions?

A family trust is not a set-and-forget structure. It is a living arrangement that requires ongoing governance to deliver the protection and flexibility it promises.

Shire Legal is a boutique law firm based in Miranda, NSW, specialising in property, business and estates law. This post is intended as general legal information only and does not constitute legal advice. You should seek advice specific to your circumstances before taking any action.