Latest News [index] Beneficiary Rights
Much is currently being written at present regarding trusts, the safety of trusts as a means of asset ownership and increasingly, the obligations that trustees incur as trustees of a trust.
However, little is written about the rights of beneficiaries particularly the rights of discretionary beneficiaries, given the number of discretionary trusts that exist in New Zealand.
A discretionary trust is one where until the end of the trust no beneficiary has any fixed interests in the trust property. A discretionary beneficiary only has the right to be considered from time to time. This means that the trustees must take the time to actively contemplate whether or not to make any payments or otherwise provide for the beneficiary. However, the trustee is under no obligation to actually make any provision for the beneficiary.
The trustee must also properly manage the trust property, regardless of whether any payments or other provisions are made.
A beneficiary's right to be considered and for the trust to be properly managed is entrenched in law. In fact, these rights are so important that any beneficiary has the right to apply to the court to enforce these rights.
While this does not mean that the court will or can compel a trustee to make payments to a beneficiary a beneficiary can apply to the court to see trust documents such as the deed of trust and the trust accounts. The beneficiary can also seek the court's assistance to ensure that the trustees are properly considering the beneficiary.
However, there is one rather important thing a discretionary beneficiary doesn't have a right to, and that is the right to be notified that the person is a beneficiary. This fundamental inconsistency can be explained in part in the context of large discretionary trusts where any obligation to notify potentially thousands or hundreds of thousands of beneficiaries could represent an onerous duty that could potentially exhaust a trust's funds.
Such an argument is somewhat less compelling in the context of a discretionary family trust. There may well be circumstances where it can be argued that it is not appropriate for relatively young adults to be apprised of substantial trusts that they may or may not benefit from in due course. The corollary position is that there are countless numbers of beneficiaries in New Zealand who have rights of which they are unaware and cannot enforce.
So what is a potential beneficiary to do? There are no publicly searchable registers of private trusts. Further the searchable registries of ownership such as the Companies Office and title records cannot record whether property or shares are owned by a trust.
Although there are certain indicators or signs of trustee ownership that a professional can advise on, the practical reality is that unless or until a law change supporting beneficiary rights most beneficiaries are pretty much in the dark.