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Beneficiary rights

Beneficiary Rights

 It is generally accepted that New Zealand has more formally settled discretionary trusts per head of capita than anywhere else in the world.  These trusts control assets worth billions of dollars.  However, the majority of people who can benefit from these trusts either do not know about the trust, or about their rights in respect of the trusts.

The purpose of this commentary is to provide a simply written and easy to understand explanation of what it is to be a beneficiary of a discretionary trust and what rights a beneficiary has in respect of a discretionary trust.

To understand what it is to be a beneficiary, it is necessary to have an understanding of what a trust is.

What is a trust?

There is no legal or singularly accepted definition of what a trust is. 

However, it is widely accepted that in its simplest form a trust is property that is owned by a trustee for the benefit of a beneficiary or beneficiaries. 

The trustee is the legal owner of the property subject to the trust.  However, the trustee cannot benefit from the property (unless the trustee is also a beneficiary). 

Most importantly, as well as owning the property, the trustee also owes certain obligations to the beneficiaries. The existence of these obligations are fundamental to a valid trust.  It is from these obligations that the beneficiaries derive their rights.

While the trust’s assets are held for the sole benefit of the beneficiaries; which beneficiaries can benefit, and to what extent is determined at the trustee’s sole discretion.

Although the trustee is the owner of the trust property at law, the trustee can only act for the benefit of the beneficiaries. 

Even though the trustee cannot benefit from the trust the trustee is accountable to the beneficiaries for any loss.

If you find this a bit heavy ready, don’t worry.  You are not alone.  Even the experts can’t agree as to exactly what a trust is!

The message you need to take from this chapter is that trusts, unlike companies, are not legal entities.  It is for this reason any dealings with a trust are with the trustees not the beneficiaries. 

It is also important to appreciate that the information provided here is in the context of a discretionary beneficiary who has no fixed rights, other than a right to be considered.  Where a trust is a will trust, or a “fixed trust” that provides for beneficiaries to have pre-determined interests in property, for example income for life on $500,000 or my house at 2 Glebe Street; the beneficiary’s rights are related to that property interest and as such are stronger and easier to establish and enforce. 

The same is the case where a beneficiary is the final beneficiary of a discretionary trust where a named beneficiary might be entitled to share equally in the trust’s remaining property at the end of the trust.

The subject matter being considered here is that of a discretionary beneficiary with nothing more than a right to be considered, which is also referred to as an expectancy.

 Major trust concepts

A reference to a trust is a generic reference to both property owned by the trust and the complex relationships that comprise a trust.

There is no register of discretionary family trusts.  A trust is only required to register with Inland Revenue if the trustee earns income.   That means that a trust that only owns a family home does not need to register with Inland Revenue.

The settlor is the person who settles the trust.  This person chooses the initial trustee or trustees, decided who will benefit from the trust and what the trust rules will be.  These rules are recorded in a document called the deed of trust.

The Settlor can also elect a person, who can be the settlor or someone else, who can add and remove trustees and or beneficiaries.

The trustee is the legal owner of the trust property and the legal “face” of the property.  Registers of property ownership such as the companies office, which records share ownership, and Land Information New Zealand, which records property ownership, are not permitted to show that the owner of property is a trustee.  This means that trust ownership is private information.

A beneficiary is a person who can benefit from a trust either through receiving capital or income.  If this person is a discretionary beneficiary the beneficiary can only benefit at the trustee’s discretion.

A final beneficiary is a person who benefits when a trust comes to an end.  Trusts can only run for 80 years.  For a trust to be valid it is essential that the final beneficiaries can be identified.

Who is responsible for letting you know you are a beneficiary?

Despite the fact that trustee holds the trust’s assets for the beneficiaries, the trustee of a discretionary trust has no obligation to tell you if you are a beneficiary of the trust.

This may seem somewhat absurd given that the trustee is accountable to you for how the trust is managed.

It is a matter that has been grappled with by the Courts and academics for some time and although the possibility of legislated rules requiring a trustee to notify you that you are a beneficiary is being considered, at present there is no obligation for anyone to do so.

Where a trust is a fixed trust so that each beneficiary has defined interests the matter is a little different and the Courts have held that such a beneficiary must be advised of the trust and the beneficiary’s interests once the beneficiary is an adult.

How to find out if you are a beneficiary

If you suspect that you are the beneficiary of a trust, you can ask the trustee to confirm this.  The trustee would be obliged to answer correctly.  That is, although the trustee need not tell you that you are a beneficiary, the trustee must acknowledge that you are if questioned. 

A trustee who did not confirm that a person was a beneficiary when asked would be in breach of trust and could be liable to the beneficiary for any loss the beneficiary incurred because of the breach.

Of course, if you do not know to ask if you are a beneficiary, or who to ask even if you know you might be, you are none the wiser.

If you would like guidance on how to establish whether this might be the case and if so who the trustee is your family lawyer may be able to assist you to make appropriate enquiries.

What can a beneficiary ask a trustee?

Having confirmed the existence of a trust, a beneficiary is entitled to ask to benefit from the trust’s assets. 

Whether or not the trustee elects to given anything to a beneficiary is at the trustee’s discretion.  However, if a trustee simply declines a request out of hand, without giving it due thought, the beneficiary can actually apply to the Court to remove the trustee and appoint another trustee.

Regardless of whether requested to do so by a beneficiary, a trustee has an obligation to consider the interests of all of the beneificiaries.  This does not equate to an obligation to given money to or otherwise benefit each beneficiary. 

 To summarise, a beneficiary has the right:

  • to seek assistance from the Court
  • to be considered as a recipient of trust assets
  • for the trustee to act objectively, fairly and reasonably
  • to apply to the court to have a trustee removed

The right to seek assistance from the Court does not mean that assistance will be given as every case will be considered on its own merits.   As a general proposition the narrower the class of beneficiaries (as is the case with most modern family trusts) the more likely the Court will be to assist

A beneficiary also has a right to trust information.  This is important as establishing that you are a beneficiary is of limited use if you don’t know what the trust’s assets and liabilities might be.  Where trustees will not provide information or agreement cannot be reached regarding what information must be provided or how either party can seek the assistance of the court.  See Erceg v Erceg

Beneficiaries’ right to trust information

A beneficiary is entitled to ask a trustee for information about a trust including:

  • the deed of trust and any deeds of variation (the trust deed is the document that sets out the terms for  the trust, a deed of variation is a document describing changes to the deed of trust)
  • the trust’s accounts
  • contact details for the trustee and any former trustees
  • any documents relating to the appointment or removal of trustees
  • details of all distributions of capital and income and who the distributions were made to (distribution is another term for payment)
  • full details of the trust’s assets and liabilities

If the trust the beneficiary is enquiring about has already come to an end or been resettled onto another trust the beneficiary is entitled to ask for any documents that relate to the winding up or resettlement of the trust.

A trust is wound up when it comes to an end.  A resettlement occurs when the assets of a trust are transferred to another trust.

If the trustee won’t provide the information requested a beneficiary can apply to Court for directions that the trustee must provide the information requested.

The reason beneficiaries are entitled to receive information is to enable them to ensure that the trustees is acting in accordance with the terms of the trust deed.  However, these rights will always be subject to the discretion of the court that must balance the rights of a beneficiary seeking information against the interests of all the beneficiaries, and in some circumstances, the wider family.

What information is not available to a beneficiary?

Beneficiaries are not generally entitled to see information relating to the trustee’s decision making processes as this information is the trustee’s information, not the trust’s information.

Information trustees do not have to give to beneficiaries includes:

  • the trustee’s reasons to vary, partially distribute and resettle a trust
  • the trustee’s reason to change existing policy in regard to distributions to any beneficiaries
  • details of advice given by the settlor to the trustee  

However, where advice from a settlor takes the form or a memoranda or letter of wishes, the Court can, on application to it, assess whether that advice does in fact form part of the trust documents.  This is determined on a case by case basis.

Who meets the cost to apply to the Court to see information?

A beneficiary who has to file Court proceedings is not automatically entitled to have his or her costs paid. 

As a general rule a beneficiary who makes a successful application is entitled to have his or her costs met, to a certain extent, from the trust.   However, as having costs met from the trust means that the beneficiary’s costs are being met from property held by the beneficiary, this is not necessarily entirely satisfactory.

In some circumstances the Court will order that the trustee meets the beneficiary’s costs, in whole or in part, personally.  Where this is the case the trustee cannot seek to be reimbursed from the trust.  Costs will be awarded against a trustee personally where the trustee has not met the trustee’s obligations to account for the trustee’s actions or to provide trust information.  The greater the failure on the part of the trustee, the greater the likelihood of a costs award against the trustee.

A beneficiary’s right to review the trustee’s decisions

A beneficiary can apply to the Court to review a trustee’s decisions or anything a trustee has done or not done.  This is a statutory right, which means that it is provided for by legislation:  see the Trustee Act 1956, s 68.

If an application is made the Court has wide powers to review a trustee’s actions and require the trustee to justify decisions made or not made.

Whether a discretionary beneficiary can apply under s 68 is not entirely clear.  However , Court decisions  to date suggest this avenue is possible where the class of discretionary beneficiaries is relatively small.

Although not supported by case law yet, if the discretionary beneficiary is also a final beneficiary, a claim may be permissible under s 68.

The administration and management of discretionary trusts in New Zealand is still relatively “new” in a legal context and for that reason, the answers to some questions are yet to be confirmed by the Court.

Court’s inherent jurisdiction to help beneficiaries

In the absence of certainty regarding whether a discretionary beneficiary can seek help under the Trustee Act it is important to appreciate that the High Court also has an “inherent jurisdiction” to assist beneficiaries where the trustee has failed to do so.

What if all the trust’s property is gone?

If a trustee has disposed of trust property in breach of trust, a beneficiary can re-claim that property from the trustee.  Where the property has been disposed of the beneficiary can trace the trust property and claim the beneficiary’s proportionate share against property purchased with the trust property.

What do if you have more questions

Trust law is a complex area.  If you have a question about a trust you can ask your trust adviser to assist.

If you do not have a relationship with a lawyer or adviser with trust experience you can seek assistance from Vicki Ammundsen, who is a trust partner at Ayres Legal.  Vicki can be reached at vicki@ayreslegal.co.nz.

If you want to look at more trust resources the following publications may also assist:

Vicki Ammundsen, Taxation of Trusts, ed 2, CCH New Zealand Limited (2011)

Vicki Ammundsen, The Trustee’s handbook, ed 3, CCH New Zealand Limited (2011)

Top 100 Questions on Trusts, ed 2, CCH New Zealand Limited (2008)

Other references

 

Discussion

29 thoughts on “Beneficiary rights

  1. Can the trustee deny the beneficiary rights to use assets in the trust?

    Posted by Carol | September 16, 2012, 4:52 pm
    • If the trust is a discretionary trust, the beneficiaries only have the right to be considered, that is the beneficiairies are only benefitted to the extent the trustees choose to. However, if the trust is a fixed trust, or the trust’s assets has vested in the beneficiaires, then the beneficiaries will have enforceable rights in trust property.

      Posted by vickiammundsen | October 10, 2012, 12:36 pm
  2. If Trustees are beneficiaries can they exercise their dicretion in their own favour if the deed does not specifiacally provide for this?

    Posted by Jon Philip Smith | October 28, 2012, 9:16 am
    • This question raises a number of issues. While a trustee can, and in New Zealand at least, commonly is a beneficiary, in exercising a discretion in favour of a trustee/beneficiary not only is it necessary to confirm the requisite power to do so; in the event the approach is taken (as is often the case), that the trustee will not vote in his/her favour – this requires reference to whether the trustees’ decisions must be unanimous. The consequences of a trustee not voting, because of concerns regarding impartiality, can make the decision void. See Dever v Knobloch [2009] NZHC 2013, which considers this point.

      As a practical matter, where the deed is unclear or there is a conflict between the decision making requirements and the terms of the deed, the deed should be varied to confirm that a trustee can make a decision in favour of the trustee/beneficiary. However, where a deed does provide such a provision there should be also be a requirement that the trustee cannot do so if a sole trustee; and there should also be a requirement that there be an independent trustee.

      Posted by vickiammundsen | November 16, 2012, 9:28 am
  3. I have a Trustee who bullies and says I have no rights as a beneficiary to the Trust property in the estate. While the property is left abandoned and not maintained who is responsible to check on the property?

    Posted by Carol | November 17, 2012, 6:34 am
  4. Can a person be the ONLY Beneficary as well as the trustee?

    Posted by Min Han | February 7, 2013, 2:47 pm
    • A trustee can be a beneficiary and a beneficiary can be a trustee. However, a trust cannot exist where the settlor, trustee and beneficiary are all one and the same person. If the legal and equitable ownership of the trust property are all held by the same person it is not possible to demonstrate the separation of ownership necessary to find the foundation for the existence of the obligations owed by the trustee to the beneficiary and for the beneficiary to enforce the beneficiary’s rights against the trustee. The existence of these rights and obligations are fundamental to a valid trust – as a trustee acts personally (there is no separate trust capacity) where the trustee and beneficiary are one and the same (and there are no further trustees or beneficiaries) there cannot be a trust.

      References:New Zealand Master Trusts Guide, ed 3 at 2.1.3

      Posted by vickiammundsen | February 9, 2013, 3:09 pm
  5. How soon after year end must trust accounts be completed? and if a trustee willfully fails over a period of time to provide these, could this be considered reach of trust?

    Posted by Leon Coy | May 13, 2013, 10:18 am
    • If the trust does not have a tax agent the accounts should normally be completed within six months of the end of the income year so that the trustee does not lose the opportunity to pay out beneficiary income. Where the trust has a tax agent the period is extended to a year. Where accounts are not prepared the trustee will likely be in breach of the trustee’s fundamental duty to account to the beneficiaries for the administration of the trust. Also, where accounts are not prepared in a timely fashion the question of penalties and the trustee’s liability for income tax must also be considered.

      Posted by vickiammundsen | May 21, 2013, 12:05 pm
  6. Can a beneficiary fire workers employeed to work for the trust estates, such as a farm if they believe the worker is costing the trust more money that it is making? Also if a trustee gives this worker free grazing but will not allow actual beneficairys free grazing on the land?

    Posted by Rebecca | May 18, 2013, 11:05 am
    • We presume that the employment relationship is between the farm worker and the trustee employer and so, no, in that circumstance the beneficiary does not have the direct right to intervene in the employment relationship. Instead the beneficiary should advise the trustee employer of the beneficiary’s concern with the arrangement and the utilisation of trust property.

      Posted by vickiammundsen | May 21, 2013, 11:54 am
  7. Does the beneficiary have a right to have the Trust hire an attorney for the beneficiary if he presumes the Trustee is ridiculously spending?

    Posted by carol | May 22, 2013, 4:02 am
  8. What happen’s if previously the director of the trust past’s away, says there is no outstanding debt. Yet step mother and representative 7 months after death come up with a deed document show borrowings. He borrowed from her and she borrowed from him, years later.
    She borrowed more than he did.
    Is there any register or way of finding out if funds were paid back to her? Is there a deed registry in NZ that shows when a payments released?

    Posted by Vanessa | August 2, 2013, 12:56 am
    • Trusts have trustees not directors – are you perhaps talking about the director of a corproate trust? There is no register of family trusts in New Zealand.
      The answer to your question should be in the trust’s accounts.

      Posted by vickiammundsen | August 2, 2013, 4:49 pm
  9. I have one, a family trust,
    Parent died last year, i am not informed of house being sold, money going out to the other sibling,
    I have requested a few times to recieve from trust a car for good reason, and get told no everytime, yet the other sibling that benifits from the trust has had a car, home deposit and is part of all the decisions/property an asset moving but is not a trustee.

    Is there any way for me to contest the desisions? Or see the asset transfers? Without going through a court?

    Posted by Reece | October 15, 2013, 12:56 am
    • As a beneficiary of the trust you are entitled to see the trust accounts and to request information about the operation of the trust. Information that beneficairies can request includes the deed of trust and any deeds of variation, the trust’s accounts, details of all distributions of capital and income and who the distributions were made to (distribution is another term for payment) and full details of the trust’s assets and liabilities.

      As a beneficiary you have a right to seek assistance from the trustees. However, if the trust is a discretionary trust (most family trusts are) the trustees can generally decide which beneficiaries to favour (and which not to).

      If the trustees will not provide the information you request you may wish to seek legal advice. However, in the event the trustees continue to refuse to provide the information requested (without a satisfactory reason) you may have no option but to instigate court proceedings. In this regard it is noted that such proceedings are rare and meerly filing proceedings usually results in not only the information that has been requested, but in some instances, costs awards against the trustees.

      Posted by vickiammundsen | October 15, 2013, 9:43 am
  10. Under the Probate code if a Trustee favors a particular Beneficiary Isn’t the trustee in Breech of Trust? I have the very same situation and have seemed legal advice and waiting for a hearing.

    Posted by jacqueline | October 15, 2013, 3:01 pm
    • Trustees of testamentary trusts have some different duties and obligations compared with trustees of discretionary trusts. The trustee of a testamentary trust, generally has no discretion and must follow the will-maker’s instructions. By contrast the trustee of a discretionary trust generally has the discretion to choose which if any beneficiaries can benefit from the trust.

      Posted by vickiammundsen | October 16, 2013, 9:56 pm
  11. If the Trust states that is to be divided into 2 shares but the Trustee does not do so instead distributes more towards the other beneficiary, What will the court do?

    Posted by Jacquelyn | October 17, 2013, 4:41 pm
  12. What are the rights of a discretionary beneficiary? If the discretionary beneficiaries are overseas, can they go to court for their interests should the only trustee pass away?

    Posted by Sam | October 28, 2013, 10:01 am
    • A discretionary beneficiary has rights of consideration and rights in respect of trust informationn. If a beneficiary has concerns as to whether or not the beneficiary’s interests are being adequately considered it may be appropriate to apply to the High Court for the appointment of an appropriate trustee (and if necessary the removal of a current trustee).

      Posted by vickiammundsen | October 28, 2013, 10:29 am
  13. I was widowed in 2010, my partner was a beneficiary of his fathers family trust. Due to a falling out his father and I have had I am concerned that our children will now be excluded from being considered for benefits from the trust. So I guess my question is, can beneficiaries be removed from a trust? If he is still listed, will his benefits go to the children or his estate?

    Posted by Karen | June 10, 2014, 2:40 am
    • Whether or not beneficiaries can be removed depends on the terms of the trust. Beneficiairies have a right to request a copy of the deed of trust, a review of which should answer your question. Regarding the position in respect of their father, if say he was a final beneficiary (that is a beneficiary who receives trust assets when the trust comes to an end), any distribution that would be made to him might be made to his children instead. Again this will depend on the terms of the trust.

      Posted by vickiammundsen | June 10, 2014, 12:48 pm
  14. Hi
    I receive $90 per/wk from my family Trust ‘The Genset Trust’ since I left home.
    My Trust is now worth over $30 million and my parents are the trustees.
    I don’t feel I’m been considered as not even my daily basic needs are met.
    I’ve spent a year trying to get my Trust deed though lawyers.
    The Upper Hutt lawyers that hold the deed write quote ‘we don’t give out any information, we never do’ this is entirely unhelpful and Im told by my lawyer the only thing is now to take them to court. This will cost from $7000 so seems impossible.
    IS THERE ANYWAY TO GET MY TRUST DEED?
    IAM A BENEFICIARY.
    VERONICA JACOMB

    Posted by Veronica | August 3, 2014, 10:40 pm
    • We refer yuo to clause 5.46 of the Review of the Law of Trusts – a Trusts Act for New Zealand, which provides that “There cannot be any obligation, and hence there cannot be any trust, if the trustee does not owe a duty to account to any beneficiary. To be able to hold a trustee to account, beneficiaries need to know that they are beneficiaries of the trust and need to be able to be provided with trust information on request. … The decision as to whether a particular beneficiary is entitled to be notified that he or she is a beneficiary or is entitled to receive trust information on request has been found by the Privy Council in Schmidt v Rosewood Trust to be something that is within the court’s inherent jurisdiction to supervise the administration of trusts. Based on this decision, which was followed in New Zealand in Foreman v Kingstone,the courts will apply the principle that a beneficiary should be notified of or provided with the information that is necessary to enable the trust to be enforced.”

      While there are circumstances where it may not be appropriate for the trustees to provide information the only practical option to advance matters is to file court proceedings, while there are costs associated with this, it is the only way that the matter can be advanced if the trustees are not agreeable to providing you with the information that you require (trust deed, trust accounts etc). In this regard it is noted that trustees who do not provide trust information can be personally liable to meet the costs of failing to do so. If you have not done so already you may wish to consider appointing a lawyer to act for you.

      Posted by vickiammundsen | August 4, 2014, 2:02 pm
  15. My husband is a beneficiary of a Bare Trust which holds commercial property. The Trustee is a Company and the Directors of that Company will not act on my husband’s request to remove his shareholding out of the Bare Trust. The Directors just ignore all requests. What can we do? One of the Directors of the Trust Company has been living in one of the properties, even though he is a beneficiary and no other beneficiary has received the same benefit. My husband just receives a Special Purpose Financial Report for the Property Syndicate, which contains very little information. They are corrupt individuals and we don’t trust them anymore. We have put a caveat over the properties as they were attempting to sell them without my husband’s consent.

    Posted by Lisa | August 27, 2014, 1:29 am
    • It is important to appreciate the difference between the rights of beneficiaries and the rights and obligations owed by trustees. While beneficiaries can indicate their wishes, it is the trustee that makes the decisions regarding trust property. As you describe this trust as a bare trust, it is less clear what discretion the trustee might have. In a conventional sense a bare trust exists where property is held by a trustee on the basis that the trustee will transfer the property when / as directed. However, based on your comments the trust appears to be operated as a discretionary trust. Also, given the concern expressed regarding the trustee’s actions your husband may wish to consider seeking the removal and replacement of the trustee. Legal advice should be sought to clarify the options.

      Posted by vickiammundsen | August 27, 2014, 10:08 am
  16. Thank you for your comment outlining your frustrations with how your partner’s estate is being handled. You may wish to consider appointing a lawyer to represent your interests in this matter.

    Posted by vickiammundsen | April 6, 2013, 5:06 pm

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