It is not uncommon for the relationship between the trustee and beneficiaries of a trust to go wrong. This article provides an introduction to the legal rights and responsibilities of trustees and beneficiaries so you know where you stand in the trust relationship.
Trustee duties
The trustee of a trust has the following duties:
- to familiarise itself with the terms of the trust – especially beneficiaries and trust property;
- to act honestly, reasonably and in good faith;
- to preserve and not waste the value of the trust assets;
- to accumulate or pay income as directed by the trust instrument;
- to advance or distribute capital as directed by the trust instrument;
- to act with care and diligence at all times;
- to avoid all conflicts of interest;
- to maintain proper accounts.
What if a trustee fails in their duties?
A trustee may be liable for any breach of its duties. A trustee’s liability will depend on the nature of the breach and terms of the trust deed.
Trustee rights and powers
In order to comply with its duties a trustee has a number of rights and powers, including:
- such powers as set out in the trust deed;
- to sell trust property;
- to apply to the court for directions on how to act in particular trust matters;
- to discharge liabilities and debts using trust funds;
- to be indemnified out of the assets of the trust and seek reimbursement for expenses incurred in managing the trust property.
Responsibilities of Beneficiaries
Generally, beneficiaries do not have any responsibilities (other than to declare any income received from the trust in their tax return). However, each beneficiary in his or her own interest should have an understanding of:
- the purpose of the trust
- the instructions to the trustee in the trust deed;
- any limitations on the trustees powers;
- rights under legislation and the trust deed;
- how trust assets are supposed to be managed;
- the basics of trust accounting;
- the overall principles of trustee administration.
Rights of Beneficiaries
A beneficiary of a discretionary trust cannot compel the trustee to give them any of the trust property. However, beneficiaries have the right to:
- due administration of the trust;
- seek information relating to the management of the trust;
- request, but not require, the trustee ti exercise its discretion to make distributions to them;
- take the trustee to court if they deal with the property in a way which is not in accordance with the terms of the relevant trust deed.
Conclusion
The relationship between trustees and beneficiaries is complex. Trustees and beneficiaries should familiarise themselves with their rights and obligations.
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