Legal Tip 51: Divorces/Separations and Beneficiaries of Discretionary Trusts

Divorces/Separations and Beneficiaries of Discretionary Trusts


When divorcing or separating from a de facto spouse the beneficiaries of a discretionary trust you are a beneficiary of will probably change. This will depend on the wording of the deed and how it is structured so the deed needs to be carefully read and analysed what effect the separation will have.


The deed may nominate a primary beneficiary called X. Secondary beneficiaries may be relatives and spouses of X and then relatives and spouses of those secondary beneficiaries.


So if Y was the spouse of X, Y would no longer be a beneficiary. Y’s sister, brother, parents etc will also no longer be beneficiaries.


Most people don’t want anything to do with ex-spouses but sometimes there are unintended consequences such as control of the trust being handed over to the ex-spouse but only for that spouse being a non beneficiary. Another consequence is that X may want to stream income to Y from the trust, rather than paying with after tax income. But this won’t be possible if Y is not a beneficiary. Step children may no longer be beneficiaries either (children of the ex). It all depends on the wording of the deed.


Amending of the trust deed may be necessary and this runs the risk of a resettlement where beneficiaries are being changed.


Tip - When setting up a trust consider what consequences future separations of yourself and your family members.