What Disputes Arise from Testamentary Trusts, and How Are They Resolved?

When your parent, spouse or business partner dies and their will creates a testamentary trust, you might assume that's the end of the matter. The structure is locked in. The trustee takes control. The beneficiaries step back.

Then reality arrives.

Someone questions whether the trust was what the deceased really wanted. A sibling controls the family business through the trust and makes decisions that benefit them more than anyone else. Distributions are delayed, withheld, or feel arbitrary. You discover you've been largely cut out, and most of the estate sits inside a trust you can't touch.

Testamentary trust disputes are rarely about abstract legal doctrine. They're about families, businesses, money, control, and what happens when any of those come under pressure.

If you're facing one of these disputes, or you're a trustee trying to avoid one, you need to understand what kind of dispute you're actually in, what your realistic options are, and how these things resolve in practice.

This article walks through the main types of testamentary trust disputes that emerge in Australia, explains when and how you can challenge a trust or a trustee, and sets out the practical pathways to resolution.

What a Testamentary Trust Is, and Why Disputes Are Common

A testamentary trust is a trust created by a will. It doesn't exist during the deceased's lifetime. It comes into being after they die, when the executor distributes assets according to the terms set out in the will.

Why would someone use a testamentary trust instead of leaving assets directly to beneficiaries?

Usually for tax efficiency, asset protection, and flexibility. The trust structure allows income to be distributed among beneficiaries in a way that minimises tax. It can protect assets from creditors, relationship breakdowns, and imprudent beneficiaries. It gives the trustee, often a family member or professional adviser, discretion to manage assets and distributions over time.

Testamentary trusts are particularly common in family businesses. The deceased might leave their shares in the trading company to the trust, with one or more adult children as trustees and the rest of the family as beneficiaries. The idea is to preserve the business, manage succession, and keep wealth in the family.

That's the theory.

In practice, testamentary trusts are fertile ground for disputes. They concentrate power in the hands of the trustee. They create ambiguity about who controls what. They often reflect compromises or careful planning that made sense to the deceased but feels unfair to someone who was left out or given less than they expected.

And when a significant business or property portfolio sits inside the trust, the stakes are high. Disagreements that might have been manageable in life become entrenched after death, because the person who could have explained or mediated is gone.

The Main Types of Disputes That Arise Over Testamentary Trusts

Not all testamentary trust disputes are the same. Understanding which category your dispute falls into will shape your options and your strategy.

There are three broad types.

Disputes about whether the trust should exist at all

These are challenges to the validity of the will itself. If the will is invalid, the trust it creates doesn't come into existence. The estate would then be distributed under an earlier valid will, or according to intestacy rules if no valid will exists.

Grounds to challenge validity typically include:

• Lack of testamentary capacity (the deceased didn't understand what they were doing when they made the will).
• Undue influence (someone pressured or manipulated the deceased into making the will).
• Lack of proper execution (the will wasn't signed or witnessed correctly).
• Fraud or forgery.

This kind of dispute isn't really about the trust as a structure. It's about whether the deceased truly intended to create that trust at all.

Disputes about who benefits and how much

Even if the will is valid, you might argue that the distribution is unfair or that you've been inadequately provided for. This is where family provision claims come in.

Family provision legislation in every Australian state and territory allows certain people, typically spouses, children, dependants, and sometimes others who were financially dependent on the deceased, to apply for a greater share of the estate if they can show they've been left without adequate provision.

The existence of a testamentary trust doesn't insulate the estate from a family provision claim. The court can order that provision be made from the trust assets, or adjust distributions, to meet your needs.

These claims are common where most of the estate sits in a testamentary trust for the benefit of one branch of the family, and another family member (a second spouse, an estranged child, or a financially dependent relative) receives little or nothing.

Disputes about how the trust is being managed

The third category assumes the trust is valid and the broad distribution is accepted, but the trustee's conduct becomes the problem.

Typical trustee disputes include:

• Control and decision-making. One sibling is the trustee of a trust that owns the family business. They make decisions about salary, dividends, and reinvestment that favour them and sideline other beneficiaries.
• Failure to distribute. The trustee holds onto income or capital without good reason, leaving beneficiaries in financial difficulty.
• Poor investment decisions. The trustee manages trust assets (property, shares, business interests) in a way that exposes the trust to unnecessary risk or fails to generate reasonable returns.
• Lack of transparency. The trustee won't provide accounts, won't explain decisions, and treats the trust like their personal asset.
• Conflicts of interest. The trustee is also a beneficiary, or has business interests that conflict with the trust's interests, and they're not managing that conflict appropriately.

These disputes don't require you to attack the will. The trust exists. The issue is whether the trustee is doing their job properly, and what remedies are available if they're not.

Challenging the Testamentary Trust: Will Challenges and Family Provision Claims

Can you challenge a testamentary trust?

Yes, but the answer depends on what you mean by "challenge".

If you're arguing that the trust shouldn't exist because the will is invalid, you're bringing a will challenge. If you're arguing that the trust exists but you should get more, you're usually bringing a family provision claim.

Let's take each in turn.

Challenging the validity of the will

If the will that created the testamentary trust is set aside, the trust collapses. The estate is distributed under an earlier will or according to intestacy rules, and the trust never takes effect.

The most common grounds to challenge validity are lack of capacity and undue influence.

Lack of capacity means the deceased didn't have the mental ability to understand what they were doing when they made the will. Maybe they were suffering from dementia, were heavily medicated, or were in a confused state. The law requires that the testator understood the nature of making a will, the extent of their assets, and the effect of the dispositions they were making. If they didn't, the will can be set aside.

Undue influence means someone exerted pressure on the deceased to make a will that reflected the influencer's wishes, not the deceased's true intentions. This is difficult to prove. You need evidence that goes beyond persuasion or even strong encouragement. The influence must have overpowered the deceased's free will.

Other grounds include improper execution (the will wasn't signed or witnessed correctly, though courts sometimes overlook minor defects) and fraud or forgery (someone fabricated the will or tricked the deceased into signing it).

These are serious allegations. They require evidence: medical records, witness statements, draft wills, correspondence, anything that sheds light on the deceased's state of mind and the circumstances in which the will was made.

And they have strict time limits. Most Australian states require you to file proceedings within six to twelve months of the deceased's death or the grant of probate. Some jurisdictions allow extensions, but delay weakens your case and may rule you out entirely.

Family provision claims

Even if the will is valid, you might have been inadequately provided for. Family provision legislation allows eligible people to apply to the court for a greater share of the estate.

Who's eligible varies slightly by state, but generally includes:

• Spouses and de facto partners.
• Children (including adult children).
• Dependants (people who were wholly or partly dependent on the deceased).
• In some states, former spouses, stepchildren, or grandchildren in certain circumstances.

The test is whether adequate provision has been made for your proper maintenance, education, and advancement in life. The court considers your financial position, your relationship with the deceased, the size of the estate, the needs of other beneficiaries, and any contributions you made to the deceased's welfare or the building of the estate.

The fact that most of the estate sits in a testamentary trust doesn't prevent a family provision claim. The court can order that you receive a lump sum, ongoing income, or other provision from the trust assets.

Family provision claims also have strict time limits, typically six to twelve months from death or probate, and missing the deadline can be fatal. Some jurisdictions allow extensions if you can show good reason for the delay, but courts are reluctant to grant them if other beneficiaries have already started relying on the distributions.

Who can bring these claims?

For will challenges based on lack of capacity, undue influence, or invalidity: usually anyone with a direct interest in the estate. That includes beneficiaries under an earlier will, people who would inherit on intestacy, and sometimes creditors.

For family provision claims: the categories are defined by legislation and are generally narrower. You need to fall within the eligible class (spouse, child, dependant, or similar).

If you're unsure whether you have standing, take advice early. Courts have no sympathy for people who spend months preparing a case only to discover they're not entitled to bring it.

Disputes About How the Trust Is Managed: Trustees, Control and Conduct

Let's assume the will is valid, the trust exists, and you're not bringing a family provision claim. But the trustee is the problem.

Maybe they're not distributing income. Maybe they're making poor investment decisions. Maybe they won't provide financial statements or explain what's happening with the trust assets. Or maybe they're running the family business through the trust in a way that benefits them and shuts everyone else out.

These are trustee disputes, and they're extremely common in testamentary trusts that hold significant business or property assets.

What trustees are supposed to do

Trustees have strict legal duties. They must:

• Act honestly and in good faith.
• Exercise their powers for the benefit of the beneficiaries, not for their own benefit.
• Avoid conflicts of interest, or manage them transparently.
• Invest trust assets prudently.
• Keep proper accounts and provide information to beneficiaries.
• Exercise discretions (like decisions about distributions) reasonably and in accordance with the terms of the trust.

If a trustee breaches these duties and causes loss to the trust, they can be held personally liable. Beneficiaries can bring proceedings to recover losses, remove the trustee, or seek other remedies.

Common trustee disputes in testamentary trusts

In practice, trustee disputes often centre on control, transparency, and competing interests.

Control of the family business. One sibling is the sole trustee and also runs the family company owned by the trust. They set their own salary, decide on dividends, reinvest profits in ways that suit their vision for the business, and dismiss objections from other beneficiaries as interference. Over time, the other beneficiaries feel locked out and start questioning whether the trustee is acting in the interests of the trust or in their own interests.

Distributions and favouritism. The trustee has discretion over distributions of income and capital. They distribute generously to themselves or their own children, but very little to other branches of the family. Beneficiaries who are receiving less start to suspect bias or breaches of duty.

Investments and risk. The trust holds property or a share portfolio. The trustee makes investment decisions that other beneficiaries think are too risky or too conservative, or that aren't consistent with the deceased's intentions. Disputes erupt over whether the trustee is managing the assets properly.

Lack of information. The trustee refuses to provide financial statements, won't answer questions, and treats requests for information as hostile. Beneficiaries have no idea what the trust owns, what income it's generating, or where the money is going.

What you can do about trustee misconduct

If you're a beneficiary and you believe the trustee isn't doing their job, you have several options.

Seek accounts and information. Beneficiaries are generally entitled to see trust accounts and financial records. If the trustee won't provide them voluntarily, you can apply to the court for an order compelling disclosure. This is often the first step: you can't assess whether the trustee has breached their duties if you don't know what's been happening with the trust assets.

Apply for directions. If there's uncertainty about how the trustee should exercise a power or make a decision, the trustee (or a beneficiary) can apply to the court for directions. This allows the court to clarify the trustee's obligations without a full-blown dispute. It's a way of de-risking contentious decisions.

Seek removal of the trustee. If the trustee has breached their duties, is in a position of conflict they can't manage, or has lost the confidence of the beneficiaries, you can apply to have them removed. Courts don't remove trustees lightly, they recognise the deceased chose that person for a reason, but removal is possible where trust or hostility has broken down irretrievably, or where the trustee has engaged in serious misconduct.

Bring proceedings for breach of trust. If the trustee has caused loss to the trust through negligence, self-dealing, or dishonesty, you can sue them personally for the loss. This is a serious step, usually reserved for cases where significant money is at stake and the breach is clear.

Negotiate a change in trustee by agreement. Sometimes the cleanest solution is for the trustee to step down voluntarily and for all parties to agree on a replacement (a family member, a professional trustee, or an independent accountant or lawyer). This avoids the cost and acrimony of court proceedings.

When courts will intervene

Courts are generally reluctant to second-guess trustees' day-to-day decisions. Trustees are given discretion for a reason, and judges won't micromanage.

But courts will intervene if:

• The trustee has acted dishonestly or in bad faith.
• The trustee has a conflict of interest they haven't disclosed or managed.
• The trustee's decisions are so unreasonable that no reasonable trustee could have made them.
• The relationship between the trustee and the beneficiaries has broken down to the point where the trust can't function.

If you're a trustee facing complaints, the most important thing you can do is document your decisions, act transparently, and avoid any appearance of favouritism or self-dealing. If you're genuinely uncertain about a decision, seek directions from the court. That protects you from later claims that you acted improperly.

Changing a Testamentary Trust After Death: Variation and Restructuring

Can a testamentary trust be changed after the person who created it has died?

Sometimes, yes. But it's not a free-for-all rewrite.

Variation by consent

If all the beneficiaries are adults, of sound mind, and agree, it's often possible to vary the terms of a testamentary trust by consensus. This is sometimes called a variation under the rule in Saunders v Vautier (though that rule applies more directly to certain types of trusts where beneficiaries have absolute interests).

Why would you want to vary a testamentary trust? Common reasons include:

• Simplifying a complex structure that's expensive or impractical to administer.
• Selling a major asset (like a family business or property) that can't easily be sold under the current trust terms.
• Adjusting distributions to reflect changed family circumstances (for example, where a beneficiary has become incapacitated and needs more support).
• Addressing tax inefficiencies or aligning the trust with current tax and estate planning advice.

Variation requires genuine consensus. If one beneficiary withholds consent, you can't force them to agree. And if any beneficiaries are minors or lack capacity, you'll usually need court approval to vary the trust on their behalf.

Court-ordered variation

Even without unanimous consent, courts have limited powers to vary trusts in certain circumstances. The scope of these powers depends on the jurisdiction and the applicable legislation (for example, some states have trustee acts that allow courts to approve variations in the interests of minor or unborn beneficiaries).

Courts will generally only vary a trust if:

• The variation is in the interests of beneficiaries who can't consent for themselves (minors, people lacking capacity).
• The original terms have become impractical or impossible to carry out.
• The variation aligns with what the deceased would likely have wanted, given changes in circumstances.

Courts are cautious. They won't rewrite a will just because the family has changed their mind about the structure. The testator expressed their intentions in the will, and courts respect that.

What variation can and can't achieve

Variation can be a powerful tool when all parties agree that the current structure isn't working. It can unlock assets, resolve disputes, and make the trust more functional.

But variation can't undo a will challenge or a family provision claim. If your issue is that you've been inadequately provided for, you need to bring a family provision claim, not seek variation. And if you think the will is invalid, variation won't help, you need to challenge the will's validity.

Think of variation as a way to adjust the mechanics of an otherwise valid and accepted trust, not as a substitute for contesting the will or the distributions.

How These Disputes Are Resolved in Practice

Testamentary trust disputes can be resolved in several ways. Most don't end up in a full trial. But you need to understand the pathway, because at each stage there are decisions to make, risks to manage, and costs to consider.

Step one: advice and assessment

The first step is always to get specialist legal advice. That means a lawyer who regularly handles estate and trust litigation, not a generalist or a conveyancing solicitor.

You need to establish:

• What kind of dispute you're in (will challenge, family provision, trustee dispute, or some combination).
• Whether you have standing to bring a claim.
• What the time limits are, and how much time you have left.
• What evidence exists, and what evidence you'll need.
• What your realistic prospects are, and what it's likely to cost.

If you're a trustee, you need advice on your obligations, your exposure, and whether you should seek court directions before making a contentious decision.

Step two: gather documents and evidence

You can't assess a dispute properly without the underlying documents. That usually means:

• The deceased's will and any earlier wills.
• The trust deed (if one exists, sometimes the will itself is the trust deed).
• Financial statements, trust accounts, and records of distributions.
• Correspondence between the deceased, the trustee, and beneficiaries.
• Medical records, if capacity is in issue.
• Any other documents that shed light on the deceased's intentions or the trustee's conduct.

If you're a beneficiary and the trustee won't provide documents voluntarily, you may need to apply to the court for disclosure.

If you're challenging the will's validity, you'll need evidence of the deceased's state of mind at the time they made the will: medical records, witness statements, drafts of earlier wills, and anything that shows whether they understood what they were doing or were subject to undue influence.

Step three: negotiation and mediation

Most testamentary trust disputes settle before trial. Litigation is expensive, slow, and emotionally draining. Judges routinely encourage parties to mediate.

Mediation works best when both sides genuinely want to avoid a trial, when the factual and legal issues are reasonably clear, and when there's a zone of possible compromise.

It works less well when one side is entrenched, when there are fundamental disagreements about facts (for example, whether the deceased had capacity), or when emotions are running too high for rational negotiation.

Even if mediation doesn't result in a settlement, it can narrow the issues and clarify what the real dispute is about.

If you're a trustee, mediation can be an opportunity to explain your decisions, provide transparency, and find a pathway that avoids the cost and uncertainty of litigation.

Step four: court proceedings

If negotiation and mediation don't resolve the dispute, you're heading to court.

For will challenges and family provision claims, you'll typically file proceedings in the Supreme Court of your state (or the equivalent probate or equity jurisdiction). The court will set a timetable for evidence, discovery, and pre-trial steps.

Trials in these cases can take several days. They're expensive. Both sides will incur significant legal costs, and there's always a risk that the losing side will be ordered to pay some or all of the winner's costs.

For trustee disputes, the process is similar, though often the proceedings are framed as an application for relief (seeking removal of the trustee, an order for accounts, or court directions) rather than a damages claim.

Courts take these disputes seriously. They'll scrutinise the evidence, hear from witnesses, and make orders that are binding.

Step five: costs and trustee indemnity

Costs are always a major consideration in estate and trust litigation.

As a general rule, if you bring proceedings and lose, you'll be ordered to pay your own costs and a portion of the other side's costs. If you win, the other side will usually pay your costs, though not always in full.

Trustees have a right to be indemnified out of the trust assets for costs reasonably incurred in administering the trust or defending proceedings. But if a trustee has acted unreasonably, dishonestly, or in breach of duty, they may be ordered to pay costs personally.

This means:

• If you're a beneficiary challenging a trustee, and you win, you'll usually recover your costs from the trust or from the trustee personally.
• If you're a trustee and you've acted properly, you'll usually be indemnified for your costs of defending proceedings.
• If you're a trustee and you've acted improperly, you may be ordered to pay costs personally and may lose your right to indemnity.

The risk of adverse costs orders is often the most powerful incentive to settle.

What Trustees, Business Owners and Advisers Should Do Early

If you're in a testamentary trust dispute, or you can see one coming, the decisions you make in the first few weeks will shape everything that follows.

For beneficiaries

If you think you've been treated unfairly, or the trustee isn't doing their job, here's what to do:

Check the time limits immediately. If you're considering a will challenge or family provision claim, the clock is already ticking. Most Australian states impose six to twelve-month deadlines from death or probate. If you're approaching that deadline, get urgent advice. Extensions are rarely granted, and delay will weaken your case even if an extension is available.

Obtain the will and trust documents. You can't assess your position without them. If you're a beneficiary, you're usually entitled to see the will and the trust deed. If the executor or trustee won't provide them, apply for probate records (which are public) or apply to the court for disclosure.

Classify the dispute. Work out whether you're challenging the validity of the will, bringing a family provision claim, or disputing the trustee's conduct. Don't assume you have multiple claims just because you're unhappy. Each type of claim has different elements, different time limits, and different prospects of success.

Preserve evidence. If you think the deceased lacked capacity or was subject to undue influence, gather evidence now. Medical records, emails, text messages, witness statements. Memories fade, documents get lost, and witnesses become unavailable. Act quickly.

Communicate carefully. Anything you say or write can be used in proceedings. Be measured, factual, and avoid inflammatory language. If you're unsure, run communications past your lawyer first.

Consider mediation early. Don't wait until everyone is entrenched. If there's a realistic prospect of negotiation, explore it before positions harden and costs escalate.

For trustees

If you're the trustee of a testamentary trust and you're facing complaints or challenges, here's what to do:

Understand your duties. If you're uncertain about what the trust requires you to do, get advice. Trustees who act without understanding their obligations are exposed to personal liability.

Be transparent. Provide beneficiaries with financial statements and information about the trust assets. Most disputes over trustee conduct start because beneficiaries feel they're being kept in the dark.

Document your decisions. Keep records of how and why you made decisions about distributions, investments, and management of trust assets. If you're challenged later, contemporaneous notes are powerful evidence that you acted properly.

Manage conflicts of interest. If you're both a trustee and a beneficiary, or if you have business interests that intersect with the trust, disclose the conflict and manage it transparently. If you can't manage it, consider appointing an independent trustee or seeking court directions.

Seek court directions if necessary. If you're facing a decision that's likely to be contentious, apply to the court for directions before you act. This protects you from later allegations that you acted improperly.

Consider stepping down if necessary. If the relationship with beneficiaries has broken down, or if the role is creating personal or professional stress you can't manage, stepping down may be the best option. It's better to step down voluntarily than to be removed by the court.

For advisers (accountants, financial planners, family lawyers)

If you're advising a family that's dealing with a testamentary trust dispute, here's what to watch for:

Escalate early. If your client mentions they're unhappy with the trust, the trustee, or the distributions, flag that specialist estate litigation advice is needed. Time limits are strict, and delay can be fatal.

Don't give legal advice. Even if you have experience with trusts, estate litigation is a specialist area. Refer your client to a litigation lawyer who regularly handles these disputes.

Help your client understand the type of dispute. Is it a will challenge? A family provision claim? A trustee dispute? Helping your client articulate this clearly will make the lawyer's job easier and save time.

Be mindful of evidence. If your client is gathering documents or making statements, remind them to be careful, factual, and measured. Inflammatory emails can derail settlement negotiations.

When to Seek Specialist Litigation Advice

Testamentary trust disputes are rarely straightforward. They involve overlapping legal principles (wills, trusts, equity, family provision law), tight time limits, significant financial stakes, and often deeply personal family dynamics.

You should seek specialist advice if:

• You're considering challenging the validity of a will that created a testamentary trust.
• You think you've been inadequately provided for and the estate includes a testamentary trust.
• You're a beneficiary and the trustee isn't providing information, isn't distributing income, or is making decisions that seem to favour themselves.
• You're a trustee and you're facing complaints from beneficiaries, or you're uncertain about how to manage a conflict or make a contentious decision.
• The testamentary trust holds significant business assets or property, and disputes over control or management have emerged.
• Time limits are approaching and you haven't yet taken advice.

The right lawyer will give you clarity. They'll tell you what kind of dispute you're in, whether you have realistic prospects, what evidence you need, what it's likely to cost, and what the pathway looks like.

Testamentary trust disputes can be resolved. But resolution requires strategy, timing, and discipline.

The earlier you take advice, the more options you'll have.

Disclaimer: This article is general information only and does not constitute legal advice. Every testamentary trust dispute is fact-specific, and the law varies by jurisdiction. Time limits are strict and missing them can be fatal to your claim. If you're involved in a dispute over a testamentary trust, or you're a trustee facing challenges, seek specialist estate litigation advice immediately.