In order to understand the rights of beneficiaries, it is useful to be aware of the duties of trustees.
Trustees’ duties include the following:
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.
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:
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.
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.
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.
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:
The Court is generally reluctant to remove trustees unless the welfare of the beneficiaries is clearly in jeopardy.
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.
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.
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