Trust Distributions: Greedy Siblings
It is commonly accepted that the trustee of a family discretionary trust who complies with the deed can distribute income and capital amongst the beneficiaries as it thinks fit. However, that may not always be the case, as in one family where two brothers ganged up on their sister.
In Trani v Trani [2018] VSC 274, the Gino and Caterina Trani Family Trust was passed by the parents to their three adult children, Luciano, Marco and Patrizia on the understanding that all three children would share equally in the benefits of the trust.
Following a disagreement with their sister Patrizia, Luciano and Marco:
removed Patrizia as a director of the trustee company (Patrizia was still one of the Appointors);
as the directors of the trustee company, sold valuable real estate owned by the trust; and
as permitted by the trust deed, distributed the capital of the trust between themselves and did not give anything to Patrizia.
The Court found that the relationship between Patrizia and her brothers was damaged to the point where the brothers were willing to hurt the trust, and themselves, to hurt Patrizia.
For example, the business of Patrizia's de facto partner occupied one of the properties owned by the trust. Patrizia's partner offered to buy the property from the trust for $550,000 but this offer was rejected and the trust later sold the property on the open market for $100,000 less.
There were other examples of the brothers' animosity based on unreasonable and detrimental conduct with Patrizia. The evidence showed that before the breakdown of the relationship, the brothers accepted that all three siblings were to share the benefit of the trust equally between them.
The Court found that, although the trustee's minutes of meeting recorded the distribution to the two brothers and stated all the right things, it did not reflect the decision-making process that took place. That is, Patrizia had not been genuinely considered for distribution.
The Court also found that the trustee's decision was made in bad faith, for improper purposes and was therefore invalid. The Court declared that Luciano and Marco held one-third of the trust fund on a constructive trust for Patrizia and were ordered to pay it over to her.
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