NSW General Rights of a Beneficiary to a Trust Fund?

Discussion in 'Wills and Estate Planning Law Forum' started by Steve500, 30 June 2016.

  1. Steve500

    Steve500 Well-Known Member

    10 March 2015
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    In a Discretionary Trust fund, do the Trustees have to notify the Beneficiary that the Trust is being cancelled/closed down?

    Can you be a Trustee and a Beneficiary on the same Discretionary trust fund? Can you Distribute the assets or money in the Trust fund before the vesting date if there is a vesting date? Do all trusts have a vesting date? Must a discretionary Trust fund have a Trust deed?

    If so, does the Trustee have to give a copy of the Trust Deed to the Beneficiaries? Can a Beneficiary make a claim on the capital/or assets in the Trust regardless of what the trust deed says or regardless if the Trustee won't accept there request to get the assets/capital?

    Just some general questions I want to know, regarding a Trust fund matter. I'm involved in (it's a Discretionary Trust fund) and a large part of my matter is I'm trying to understand the rights of the trustees and the rights of the beneficiaries.
  2. Victoria S

    Victoria S Well-Known Member

    9 April 2014
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    Yes - generally a trustee can benefit from a discretionary trust -(Ailseen Pty Ltd v One Hawker Holdings Pty Ltd & Anor [2006] VSC 135), however, many advisors prefer to use a company as trustee. Also a sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries.

    If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances. However, a trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.

    A trust deed should set out a vesting date, at which the trustee may determine to terminate the trust. It is often set to the maximum of 80 years or contingent on some event such as the death of the person who instituted it. Not including a vesting date of a trust can have significant tax consequences.

    Yes, this is part of the purpose of a discretionary trust. In order to avoid incurring a penalty rate of income tax on the trust fund the trustee must exercise its discretion to distribute trust income each financial year in which income is derived by the trust.

    The trust deed sets out the terms of the relationship between the trustee, the beneficiaries and, if the role is filled, the appointor. It can be used to dictate a variety of procedures or mechanisms in terms of the discharge of the trustee’s duty to the beneficiaries.

    It is also the document which creates a separate legal entity and you will need to produce a copy of the trust deed for tax and winding up purposes. It is definitely the strongly recommended course of action - to avoid unnecessary tax penalties and liabilities and doubt being cast on the legitimacy of the trust. Also any transactions which involve the transfer of property must by law be in writing otherwise they are unenforceable. I don't believe it is possible to operate a discretionary trust without a trust deed.

    If you are still talking about a discretionary trust fund here...beneficiaries do not have an interest in the assets of the trust, but rather a right to be considered until such time as the trustee exercises its discretion to make a distribution.

    However the recent "Richstar case" decided in WA has identified situations where a beneficiary is an effective "controller" of the trust and may have an interest in assets held by the trust. This is a substantial change from the usual position.

    In the ordinary case, a beneficiary does not have an interest, not even a contingent interest, in the assets of the trust. However, the judge held in this case:
    " where a discretionary trust is controlled by a trustee who is in truth the alter ego of a beneficiary, then at the very least a contingent interest may be identified because 'it is as good as certain' that the beneficiary will receive the benefits of distributions either of income or capital or both."

    Examples where the beneficiary was an 'effective controller' included where:
    • the beneficiary was the director and secretary of the trustee company, and the original appointor (with his wife being the current appointor);
    • the beneficiary was current trustee and the current appointor was his wife; and
    • the beneficiary was the appointor.
    This case turned on its own facts though. It would be wise to get legal advice on your specific situation.
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