Trustees have a duty to manage a trust’s assets in the best interests of its beneficiaries. In order to fulfil this duty, trustees must first be able to identify all of the beneficiaries, either personally or by class. This article will provide an overview of some of the common considerations for trustees of discretionary trusts.
Needs Of Beneficiaries
To ascertain the needs of individual beneficiaries, trustees must first know who they are. Beneficiaries may be named individually or as a class of beneficiaries such as “All children of the settlor”. Trustees can then undertake to gather information regarding the circumstances of each beneficiary and their intended benefit from the trust either under the terms of the trust itself or the wishes of the settlor who created the trust.
A trustee should keep records of the following minimum information in respect of each beneficiary:-
- Personal details including date of birth;
- If the beneficiary is a minor, the identity and contact details of their legal guardian;
- Country of tax residence;
- Marginal tax rate;
- Marital or relationship status;
- Details of any dependants;
- Employment status;
- State of health
- Cash-flow requirements. For example, for education or lifestyle maintenance.
Trustees should continually be aware of the circumstances of beneficiaries as these may change over time. For example, a beneficiary may become redundant or require financial assistance with a new business venture.
Restrictions on Beneficiaries
A trust deed may contain certain provisions which restrict certain persons from benefiting from the trust or apply conditions to their benefiting. For example, the deed may describe “excluded persons” who should not benefit from the trust or it may state that certain persons may only benefit upon the condition of reaching a certain age or getting married.
Memorandum of Wishes
A settlor may convey their wishes to the trustees in a memorandum of wishes, also referred to as a letter of wishes. While it provides the settlor with the opportunity to express their wishes with regard to how the trust assets should be managed and distributed to beneficiaries, it is not legally binding upon the trustees. However, it does typically provide guidance to the trustees about who should receive benefit from the trust. For example, the settlor may intend for only his/her spouse to benefit during their lifetime and for their children to only benefit upon the death of the last surviving parent. It may also recommend that the children only benefit upon reaching a specific age.
A memorandum of wishes may also put forth the name of a person to whom the trustees should look to for guidance following the death of the settlor.
Duty to Consider the Beneficiaries
Trustees must act impartially with respect to the beneficiaries by considering all beneficiaries in their decision making. They should not blindly follow the instructions of the settlor but may give consideration to their wishes, which are not binding, unless included in the terms of the trust.
Trustees should regularly review the needs of beneficiaries as these may change over time. A failure in the health, employment or relationship status of a beneficiary may significantly alter their needs. The circumstances or wishes of the settlor may change over time also so ongoing communication from the trustees with all related parties is essential.