The Beneficiaries Want The Money...Help!

You've worked hard for what you have and to ensure your assets are protected, you've gone to the trouble of putting them in a family trust. Now those assets are protected for you and your loved ones – for the beneficiaries of the trust.

But what happens when the beneficiaries want the assets? Can your children or other beneficiaries, such as your siblings, get access to those assets? Can they find out what's in the trust and what they're entitled to? Are they entitled to know all about the trust and its affairs?

Unfortunately, human nature being what it is, this issue comes up more than most people would like. Usually, like all human being issues, feelings of suspicion, distrust and jealousy underline the problem. And just like a lot of issues, responding to the problem in either a confrontational manner or limiting the communication between trustees and beneficiaries doesn't help.

What is helpful is understanding what information beneficiaries are entitled to and then, having an open dialogue with an aim of improving matters – maybe even improving the relationship which is frequently at stake.

The Courts Decide

Traditionally, what a beneficiary could and couldn't see was based on whether they were a fixed or a discretionary beneficiary. Fixed beneficiaries had an entitlement to the assets of the trust and so had a right to view all trust documents, including financial accounts. Discretionary beneficiaries on the other hand, had only an entitlement to be considered by the trustees when those trustees were handing out cash, capital and assets. As such, discretionary beneficiaries had no entitlement to view trust documents.

Thankfully, we moved from that position. Now it doesn't matter if a person is a fixed or a discretionary beneficiary because now, it is up to the courts to determine what documents a beneficiary is entitled to see.

Under the 'inherent jurisdiction' approach, a court says it has the ability to supervise and, if necessary, to administer a trust and therefore, a beneficiary has a right to approach them to seek disclosure of trust documents. Ultimately this means that it is up to the courts to determine what a beneficiary can and cannot see.

Courts are mindful creatures. They implicitly understand human relationships – after all, they deal with human issues every single day. With this understanding, they exercise their discretion and engage in a bit of a balancing exercise. They weigh up the competing interests of different parties (i.e. trustees and beneficiaries and third parties) and consider a myriad of issues including personal and commercial confidentiality, parties' privacy, consequences of disclosure, etc.

Additionally, they are aware that trustees do not have to disclose to beneficiaries their reasons for exercising their discretionary powers. This point is particularly important because it can have an effect on what the court's ultimate decision is – what the court will decide a beneficiary can and cannot see.

Sometimes, at the end of this balancing exercise, the courts decide that disclosure should be limited and safeguards should be put in place. Often this is to protect the relationships within the family.

Look What The Beneficiary Found

In the past, the courts have said the types of information listed below should be disclosed to beneficiaries. Remember, each case is decided on its own merits so the items noted on this list are not set in concrete.

* Deeds of Trust;
* Deeds of Variation of Trust Deed provisions;
* Deeds of Changing of Trustees;
* Deeds of Resettlement;
* Legal opinions relating to the interpretation of a Trust Deed's provisions;
* Legal opinions with respect to a Beneficiary's rights;
* Valuations of assets of the Trust; and
* Financial accounts of the Trust.

Some Secrets are Better Left Just That – Secret

Historically under case law, courts have said that beneficiaries do not have a right to the types of information I have noted below. Read this list with the above caveat – courts can decide something different depending upon the facts of the case before them.

* Letters from Settlors to Trustees;
* Notes from Settlors to Trustees;
* Memorandum of Wishes made by Settlors;
* Notes made by Trustees setting out their reasons for the decisions they have made; and
* Statements which show the motives of Trustees.

Raiding the Trust

So the big question is now that the beneficiaries have the financial accounts in their hands, what can they do with that information? Well, one common tactic is they can apply to the courts for an order, which would state that monies due and owing to them are in fact, paid to them. For this reason, it's important to deal with the allocation of trust income each and every year.

Any income that has been allocated to a beneficiary and shown as such in the financial accounts may be called by that beneficiary to be paid to them upon them becoming adults. A court order can also require this. Hence, in my view, only income that is to be spent on a beneficiary should be allocated to them in the trust's financial accounts. Failure to allocate income in this manner may result in a beneficiary requiring a trustee to pay them the surplus income that appears as a credit in their beneficiary account shown in the financial accounts of the trust.


Summary

Like all human problems throughout time, good dialogue can solve the insurmountable. This is because open communication fosters goodwill and trust between people. If goodwill and trust exist, there is less of an opportunity for secrecy and distrust to creep in.

Trustees and beneficiaries are human beings and human beings respond positively to people being honest and clear with them. So the order of the day is to seek opportunities to promote positive communication between each other.

In my view, it is really irrelevant whether a trustee has to legally show a beneficiary a trust document or not. If a beneficiary has had to approach a court to get an order to see the trust documents, the relationship between the beneficiary and the trustee is in trouble and that is where the real problem exists.

Being clear and honest with beneficiaries when they ask about a trust's affairs is a sensible thing to do, as it preserves the relationship. Failure to do so will simply create suspicion and exacerbate tension. Remember... a trust, is about relationships and about looking after assets for the future. So in the name of trust, taking time to care for relationships and teaching beneficiaries about money, assets and protection will ultimately ensure the future that you are working hard to provide for is kept secure.

If you'd like to learn more about running a trust, have a look at our professional trustee webpage. As always, if you would like to discuss matters pertaining to setting up or running a trust, contact us at GRA - phone +64 9 522 7955 or [email protected].