Can you change a discretionary trust to a fixed trust?

While it is possible to change a discretionary trust to a fixed trust, it is normally a very complicated process involving much legal and practical detail. Much will depend upon the initial terms of the trust as contained in the original trust deed—the crucial document in creating the trust. In some trust deeds, provisions are made for the manner in which the trustee can amend the disposition of the trust, which may include changing it from a discretionary to a fixed trust. If the deed has those provisions, a trustee may have the power to make those changes, usually with beneficiary consent or an order from the court.

However, if the trust deed does not provide for such amendments or in cases where not all beneficiaries may agree to such changes, then the amendment may need court sanction. The courts can sanction the changes in the trust arrangement if it can be proved such amendment is in the interest of beneficiaries or the change is in line with what the trust was initially set up for. In addition, such a change in the character of the trust may indicate serious tax liabilities, an assessment of the manner in which the income of the trust is to be taxed, and in which the assets are treated under estate planning. Such modifications may also mean that the property is exposed to other legal requirements, such as transfer duties or even capital gains taxes.

Owing to the complexities of everything aforementioned, a professional legal and tax advisor is essential to ensure this process is carried out smoothly and in full compliance with the law. Practical considerations must also be taken into account, such as how the trust's assets are managed and how changes might impact beneficiaries currently receiving distributions. Altering a trust structure, such as converting a discretionary trust into a fixed trust, can affect existing investment strategies and ongoing support arrangements. This process requires careful planning, legal expertise, and often, consent from all involved parties to ensure the transition aligns with both legal requirements and the trust’s purpose. At One Pacific Trust, our vision is to be the leading provider of trust services, offering the expertise needed to navigate these complex changes and safeguard the interests of all stakeholders.