If you are a named beneficiary in a trust, it can be very confusing to work out if you are entitled to receive anything from the trust. Though the trust assets (such as money, shares and property) may be held for your benefit, legally they are controlled by someone else – the trustees. It is the trustees who make all the decisions about the trust assets. This can include when and how much you receive from the trust, and in some cases whether you receive anything at all. What you are eligible to receive from the trust (and when) will depend on the type of trust that it is.
What are the types of trust?
There are many different types of trust, some which overlap and depend how they are set up and for what purpose. However, the two main common types of trust are:
The trustees are simply holding the assets for the named beneficiaries who are absolutely entitled to all the capital and income from the trust. The trustees will manage the trusts until the beneficiary is entitled to receive the money, normally when they turn 18 years old, though it can be later if the trust deed provides for a different age e.g. 21 years.
The trustees have little say as to who the assets are paid out to and the category of beneficiaries is normally fixed. The beneficiaries may be able to compel the trustees to transfer assets to them.
These trusts are common in a will where a person wants to pass assets outright to children who may still be minors at the date of their death.
The trustees are holding the assets for a number of beneficiaries though none of the beneficiaries have a fixed interest in in the trust. They are not entitled to receive anything from the trust as of right. The trustees have a massive amount of control over the trust assets and can ultimately decide who receives anything, when they receive it and how much. The trustees do not have to give any particular beneficiary anything from the trust.
These trusts are very flexible and are common in wills especially if there is a lot of money or significant assets such as land. They can be used to assist family members who may need financial help at different stages or may need more help than others. They can also be used to assist beneficiaries who are not capable or responsible enough to look after their own finances. They are a useful estate planning tool. As none of the beneficiaries have any guarantee that they will receive anything from the trust, the assets won’t form part of their estate upon their death or if they were to divorce.
How can a beneficiary claim money from a bare/absolute trust?
If a beneficiary of a bare trust is over the age of 18 years then they can simply ask the trustees to pay the money out to them that they are entitled to. As long as there is no other criteria to satisfy, the trustees should not refuse. If they do, they may be in breach of trust and a beneficiary could have them removed as trustees. Alternatively, if all beneficiaries are adults and they are in agreement, the trust could simply be wound up.
If a beneficiary is not entitled to receive all the money yet, then they can still request that the trustees pay some out to them/a guardian if the money is to be used for their benefit e.g. pay school fees, buy a car etc. Again depending on the terms of the trust a refusal could amount to a breach of trust if the trustees are not acting in the best interests of the beneficiaries by refusing the request.
How can a beneficiary claim money from a discretionary trust?
As explained above a beneficiary of a discretionary trust has no fixed interest in the trust or right to receive any of the trust assets. They have a “hope” that they will receive money and the right to ask the trustees to exercise their discretion in their favour. They only have limited rights to see documents from the trust.
Ultimately, if a discretionary beneficiary wants money from the trust then they have to ask the trustees. The trustees may ask for further information as to reasons for the request, possibly to check to see if the money is to be used for one of the purposes set out in any letter of wishes (e.g. pay for university fees, buy a house). The trustees must consider any request made from a beneficiary properly and the trustees must all agree whether to accept or refuse it. The trustees are entitled to refuse a beneficiary’s request and they do not have to give reasons for their decision though they should make a record of their decisions and keep proper trust accounts.
However, if it can be shown that the trustees did not exercise their discretion properly (e.g. did not take into account all the relevant information) or they are not acting impartially as trustees, then a disappointed discretionary beneficiary may be able to bring a claim to have the trustees removed.
Trusts can be complex, and it can be difficult for discretionary beneficiaries to know what they are entitled to and what can be done about it if they find themselves up against trustees who refuse to communicate with them or refuse to make distributions. We have a great deal of experience in dealing with trustee matters, acting for both trustees and beneficiaries and will be able to assist.