How trusts are terminated under Australian law

There are three main ways in which a trust instrument may be terminated, and are as follows:

• the power of revocation may be included within the trust instrument, granting the power to revoke the trust to a number of parties;
• with the consent of all beneficiaries;
• distribution of the trust property to beneficiaries.

Termination of the trust by revocation

A power to revoke the trust may be included within the trust instrument which may make an allowance for trustees, third parties, or even settlors to revoke the trust. However, if there is no power to revoke the trust, it is treated as an irrevocable disposition of property.

Termination of the trust by beneficiaries

Beneficiaries who have full capacity may terminate a fixed trust – even if it defeats the intention of the settlor. Although, the principle may only be operational where the beneficial interest is unrestricted, signifying that the objects of the trust have an entitlement to the trust property that is indefeasible and absolute.

Additionally, beneficiaries who have several (aliquot) shares of a trust fund which are absolute and indefeasible, may terminate their share of the trust and make a request for payment – absent any contrary intention within the trust deed. However, if a beneficiary owes a liability to the trust estate, the appropriate amount may be deducted by the trustee before payment is made to the beneficiary.

On a related note, the court has the discretion to deny the right to terminate a trust of an aliquot shares if the trust property cannot be divisible.

Termination by distribution

The most obvious manner in which a trust may be terminated is when the trust property is distributed to all beneficiaries in accordance with the terms of the trust. 

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