Can a beneficiary tell a trustee what to do?

You are currently viewing Can a beneficiary tell a trustee what to do?

Aintree Group Legal’s Series on Trusts – Part 5

As part of Aintree Group Legal’s ongoing series on Family Trusts, this week we look at what rights a beneficiary has to control the management of a trust.

Beneficiaries don’t actually own the assets of a family trust.

So, can a beneficiary give instructions to a trustee of a family trust?

The starting point is that beneficiaries under a discretionary or family trust do not have property interests in trust assets (with some small legislative caveats). This significantly limits a beneficiary’s control over a trust.

Beneficiaries’ rights are largely administrative. They have rights to have the trust properly managed, to compel the trustee act in good faith, to be considered for trust distributions and to inspect the books of the trust.

This means that beneficiaries can take legal action for breach of trust and can seek a court order to remove a trustee. But they are not entitled to receive the reasons for a trustee’s discretionary decisions.

This means that an individual beneficiary under a discretionary trust has no real control over the trust.

What if all the beneficiaries work together?

Let’s imagine a trust established by parents for the benefit of their children. The parents’ concern is that they want to ensure that the trust is not frittered away by the spendthrift children, so they place an independent trustee in charge to manage trust assets for the beneficiaries. Can the beneficiaries break the trust or control the trustee?

There is a rule of law that says that all the actual or possible beneficiaries of a trust – being collectively entitled to the trust assets, of full legal capacity and acting unanimously – can work together to direct the trustee to terminate a trust and distribute trust assets.

So a trust with a small number of beneficiaries could potentially fall under the partial control of those beneficiaries working together, albeit the trustee would retain discretion as to the distribution of assets.

The problem for most beneficiaries is that there are significant practical hurdles to this approach. Typically, the pool of beneficiaries under a family trust is expansive so that it may not be possible to create a definitive list. For instance, trusts often include an expansive list of charities as potential beneficiaries, meaning that it is not possible for all the beneficiaries to be identified, let alone work together.

In short, other than limited powers to ensure a trust is administered correctly, a beneficiary has very little formal ability to tell a trustee what to do.

Aintree Group Legal will be happy to discuss your family trust and succession needs. Contact us today.