Yes — while family trusts are generally robust legal instruments, they can be challenged under specific legal grounds. Challenges may target the validity of the trust deed, the actions of the trustee, or the intentions of the settlor. Courts in Australia recognise several circumstances under which a trust may be contested, particularly when issues of undue influence, lack of capacity, or breach of fiduciary duty are involved.
This guide explains when and how a family trust can be challenged, who has standing to bring a claim, and what legal principles govern the process.
While family trusts are generally treated with deference by the courts, there are specific legal grounds that may justify a challenge. These grounds are rooted in principles of equity, fiduciary responsibility, and procedural validity. A successful challenge typically requires evidence that the trust was created, operated, or altered in a way that breaches legal or equitable obligations. Below are the most common circumstances under which a family trust may be legally contested in Australia:
If the settlor lacked mental capacity when establishing the trust — for example, due to illness, coercion, or cognitive decline — the trust deed may be declared invalid.
A trust may be challenged where a party alleges that the settlor was pressured, manipulated, or coerced into setting up the trust. This is more common in complex family disputes or blended family arrangements.
Courts may declare a trust invalid if it is found to be a “sham” — that is, a structure that appears legitimate but does not reflect the actual intention of the parties. For example, if the trustee acts entirely under the direction of another party without independent decision-making, the trust could be challenged as a legal facade.
If a trustee fails to comply with the trust deed, misuses trust funds, or otherwise breaches their fiduciary obligations, beneficiaries or eligible parties may have grounds to initiate legal action.
In Australia, challenges to a family trust are generally brought by parties who have a direct interest in the trust, including:
Notably, a challenge cannot be brought merely because someone disagrees with a distribution decision — there must be a clear legal or equitable basis for the claim.
It is possible to challenge a family trust after the death of the settlor or trustee, particularly if the trust was used as a substitute for a will or was part of a broader estate plan. For example:
In such cases, the court will examine the timing, intention, and effect of the trust in conjunction with estate law principles.
The trust deed is the cornerstone of a family trust’s legal existence. If the deed is:
…then the trust may be open to challenge. Courts may either interpret unclear clauses or declare parts of the deed void, depending on the severity of the defect.
When a challenge is successful, courts may:
Each remedy is case-specific and depends on the nature and impact of the breach or invalidity.
To minimise the risk of litigation, trust structures should be:
Independent legal advice, especially at creation and amendment stages, strengthens the defensibility of the trust against future challenges.
Below are answers to common legal questions based on real search data:
Grounds include lack of capacity, undue influence, breach of duty, sham arrangements, or invalid execution of the trust deed.
Beneficiaries, former partners, creditors, or other parties with a demonstrable interest in the trust may bring a challenge, subject to legal standing.
Yes — particularly if the trust appears to override or avoid estate claims, or was established under questionable circumstances shortly before death.
A formal legal claim must be filed in the appropriate court jurisdiction. Evidence will be required to establish legal standing, breach, and impact.
Yes. Limitation periods apply and vary depending on the nature of the claim (e.g., fraud, breach of trust, equitable claims). Legal advice should be sought promptly.
Although family trusts are robust structures, they are not immune from legal scrutiny. When a trust is created under flawed conditions or managed in breach of legal obligations, courts in Australia can and do intervene. Understanding the circumstances under which a family trust can be challenged — and how to build a legally resilient structure — is essential for trustees, beneficiaries, and estate planners alike. In many cases, finding a good family lawyer is the most effective step to protect your interests and navigate complex trust disputes with confidence.