When trustees act for a discretionary trust, they have a primary duty to act for, and in the best interest of the beneficiaries. Consequently, any benefit received under the trust is provided at the discretion of those trustees.
Trustees of a discretionary trust have a wide-ranging scope of power in terms of the decisions they make for the trust, with a limited liability for such decisions. However, beneficiaries do also have rights under law to monitor the trust/trustees.
Generally, a discretionary beneficiary has the right to:
- request from the trust or its representatives, documentation for the trust (i.e. trust deeds, appointment/removal of trustee documents, details of trust distributions, trust accounts, trustee contact details and details of trust assets and liabilities);
- receive fair treatment from trustees;
- be considered in any decision made by the trustees;
- seek the court to remove a trustee; and
- apply to the court for intervention or assistance.
The ability for a discretionary beneficiary to request and obtain trust information is an important right and can be where disputes arise. It is important for beneficiaries (especially if you have only just found out you are a beneficiary) to understand what exactly the trust assets and liabilities are, who the trustees are if you want to contact them, and potential history of the trust and trustees. Whilst the request for this information can ruffle the feathers of some trustees, and trustees have been known to deny requests (see the recent case of Erceg v Erceg), the underlining fact remains that the trustee’s role is to act for the beneficiaries benefit above all.
Discretionary beneficiaries can request, but may not be entitled to receive the reasoning behind trustee decisions. This is to protect the role of the trustee and the trust that is placed in them when the trust was established. However, the court can intervene if an explanation is considered justified.
If a trustee is thought to be acting contrary to the benefit of the discretionary beneficiaries or is refusing to provide information to the beneficiaries, then the beneficiaries can apply to the court to have such information released and potentially have the trustee removed or replaced.
Given that there is no requirement for anyone to inform you that you are a discretionary beneficiary of a trust, sometimes trusts can be wound up before you are made aware. Where this occurs, a beneficiary can request provision of information relating to the winding up and final distributions of the trust to see how the assets and liabilities were distributed.
Under section 68 of the Trustee Act 1956, a trust beneficiary can apply to the court to review a decision or act performed by the trustees if they feel that they have reasonable grounds for being aggrieved by the act or omission. Whether a discretionary beneficiary can apply under this act is not yet set in stone, however, decisions by the court point to the idea that if the number of discretionary beneficiaries is small, it may be permissible.
If you are a discretionary beneficiary and unsure of your rights, it is advisable to contact a legal professional to talk you through this.