Expertise, Trust, Wills, Estates and Enduring Powers of Attorney

Rights Of Beneficiaries

In order to understand the rights of beneficiaries, it is useful to be aware of the duties of trustees.

Duties of trustees

Trustees’ duties include the following:

  1. To know what the Trust Deed contains
  2. To administer the Trust personally
  3. To act impartially and to consider whether to exercise the powers conferred by the Trust Deed
  4. To invest properly using the prudent person rule under the Trustee Act 1956
  5. To avoid conflicts of interests and not to take unauthorised profits
  6. To keep proper records

In general terms the most important duty is the general duty to take all those precautions which an ordinary prudent person of business would in managing his or her own affairs or that he or she would take in managing the affairs of other people for whom he or she felt morally bound to provide.

Can a beneficiary question a trustee’s decision?

Most Discretionary Trusts give very wide discretion to trustees in relation to the distribution of benefits to beneficiaries.  The Courts will generally not interfere with decisions made by trustees if the trustees are exercising their discretion in a proper manner.  A proper manner means that the trustees’ discretion was exercised in good faith, upon real and genuine consideration being given and in accordance with the purposes for which the discretion was conferred and not for some ulterior purpose.

The Courts will question a trustee’s discretion if:

  • what the trustee has done is unauthorised by the power conferred upon the trustee by the Trust Deed
  • it is clear that the trustee would not have acted as he/she did had he/she properly taken into account factors which he/she should have taken into account

It is also settled law that there is no duty on trustees to disclose reasons for arriving at a decision. Trustees have a clear duty to consider the needs and requirements of beneficiaries, but they do not have to disclose reasons why they exercised their discretion in a particular manner.

Trustees’ indemnity

A trustee has a right to be indemnified out of Trust assets in respect of those liabilities incurred by him or her in the course of his or her authorised activities as a trustee.  A trustee will lose their right of indemnity if he/she acts in excess of his/her Trust powers or in breach of his/her duty of reasonable care and diligence.

Can beneficiaries force a distribution?

This depends on the nature of the Trust.

Under a Fixed Trust the beneficiary has equitable rights and can compel distribution.

Under a Discretionary Trust the beneficiary has no such right, only a right to be considered, and so cannot compel distribution.

Can the beneficiaries force the removal of a trustee, or have any say in the appointment of a trustee?

Yes, if all the beneficiaries agree. Otherwise beneficiaries can apply to the Court under section 51 of the Trustee Act.

The Court can remove a trustee when it is expedient to do so and also where a trustee:

  • Is guilty of misconduct in administering the Trust
  • Is convicted of a crime involving dishonesty
  • Is mentally disordered
  • Is bankrupt
  • Is a company that has stopped trading or been liquidated

The Court is generally reluctant to remove trustees unless the welfare of the beneficiaries is clearly in jeopardy.

Can a beneficiary sue a trustee?

A beneficiary can sue a trustee for breach of duty. There is no time limit where the claim is based on fraud or fraudulent breach of Trust, or for monies or property held by the trustee.  In all other cases there is a time limit of six years.

Can beneficiaries attend trustee meetings?

No. The agenda, the meeting itself and the minutes of the meetings are not Trust documents.

For more information regarding the rights of beneficiaries, please contact Tony Fortune or Cathy Fisher.