“It’s important to follow the terms of your trust deed, but you also have to consider whether the trustee is exercising that discretion properly and whether there is any room for criticism,” she said.

Scott Hay-Bartlem, partner at CGW Lawyers, said typically, when a person wants someone exited as a beneficiary, it is better to get them to sign a disclaimer than have the trustee exercise discretion.

“In family law, for example, where this is often coming up, we'll get a provision put in the order, which says that the spouse must disclaim their interests as well,” he said.

“However, this is an area where we are seeing more challenges arising.”

Mitchell said one of the reasons for these challenges is that there is a passing of control in trusts to the next generation.

“While mum and dad were alive everyone was happy for them to control the trust, but now coming down to second or third generation, the siblings, cousins, or other family members don't all necessarily get along and agree about who benefits from this trust, and that's where we're seeing challenges to how the trustees are making their decisions,” she said.

“If a beneficiary is, for example, being paid out of their interest, you want some good documentation recording that agreement so there is evidence to support the trustee's ability to then exclude them from the terms of the trust if they're not disclaiming.”

Hay-Bartlem said trustee discretion is becoming an increasing issue in SMSFs and there are numerous court cases challenging trustee discretion and decisions, and even though it may seem there are changes in the law regarding some of these situations, it is generally only a matter of applying normal trustee principles.

Mitchell added that people are also becoming more educated about their potential rights and disputes they can raise for entities such as family trusts and SMSFs.

“It’s best to try to deal with all these issues in your estate planning and get it right to avoid the dispute later.”