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So it's OK for a husband and wife, who are the primary beneficiaries of the trust, to also be the trustees?

Where there is a broad class of beneficiaries, as there is with a discretionary trust, there should be no problem with the individual trustees also being the primary beneficiaries. For a trust to exist, there needs to be a separation of legal and beneficial interests between the trustees and beneficiaries, and if two trustees hold the trust property on trust for a broad range of beneficiaries (which may include the trustees themselves), this should satisfy the requirement of separating legal and beneficial ownership.

Note that this result should not change whether there are two individual trustees, a sole individual trustee, or, indeed, a company where the directors and shareholders are also primary beneficiaries.

Specifying the primary beneficiaries in the deed is simply a means of establishing who is included in the entire class of beneficiaries (as the General Beneficiaries are determined in part by reference to the Primary Beneficiaries), although the primary beneficiaries can also be default beneficiaries in certain circumstances.

It is important to remember, therefore, that, in a discretionary trust, the potential beneficiaries (also known as "objects" of the trust), may include hundreds of individuals, companies, and trusts associated with the primary beneficiaries and each other (as well as charities), and it is for these potential beneficiaries that the trustees hold the property on trust (i.e., not just for the primary beneficiaries alone).

There is an argument that allowing a trustee to be a beneficiary may invalidate a trust, but that argument is not supported by the case law as it currently stands (and would probably invalidate a lot of trusts in Australia!) However, we have heard that this may be a problem overseas. To be extra careful, therefore, some people prefer to have a totally independent trustee "just in case".

Note that some say that the same argument could apply where a corporate trustee's directors and shareholders are also primary beneficiaries, i.e., this could invalidate the trust, although the corporate trustee in such a case, being a separate legal entity, is probably one step removed, and there are other benefits to having a corporate trustee (such as personal asset protection), although the costs of having a corporate trustee are higher. Also, a trustee who is also a beneficiary would need to be careful to ensure that he or she does not breach any of their fiduciary duties in relation to the trust and the beneficiaries. For example, the trustee has a duty to act honestly and in good faith, and should also consider all of the potential beneficiaries (or "objects") of the trust before making a distribution in a particular year, irrespective of whether he or she is also a beneficiary. In addition (this is taken from the NTAA's recent "Trusts" seminar notes):

"Unless the trust deed specifically allows it, (the trustee) cannot exercise his powers in his own favour. For example, he could not borrow money in his own capacity from the trust interest free and without security unless the trust specifically allowed it. Similarly, if (the trustee) was also a beneficiary he must take care when exercising his discretion to distribute income to himself. An improper exercise of that discretion to advance his own interests will constitute a breach of trust."