Rights of Beneficiaries

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Beneficiaries have several rights. Amongst them are:

  • Extinguish the trust - this means to end the trust before its stipulated time. To extinguish the trust, a beneficiary must be (:Saunders v Vautier[1]):
    1. Sui juris - legally capable (not a minor etc)
    2. Absolutely entitled to a vested interest (ie, no discretion for the trustee).
    3. If there are multiple beneficiaries, they must be unanimous: Gosling v Gosling. [2]
    • If the trustee has no active duties, the beneficiary will also have a right to take possession of the trust property.
    • Even if not all the trustees are sui juris, a beneficiary can still call for his share if:
      1. The property is divisible: Whatakane Paper Mills v Public Trustee.[3]
      2. The others beneficiaries’ interests will not be prejudiced by such a distribution: Manfred v Maddrell.[4]
    • Beneficiaries of a discretionary trust can only extinguish if (:Sir Moses Montefore Jewish Home v Howell (No 7)).[5]:
    1. The class of objects is closed, and
    2. The trustee holds a trust power of appointment, obliging the trustee to distribute the capital to the listed objects.
  • Compel performance - relates to the proper enforcing of the trust. Includes:
    • A beneficiary can take action against the trustee and even seek to replace the trustee: Miller v Cameron.[6]
      • A trustee will not be replaced because the beneficiary simply wishes it, or because of mere hostiles between the trustee or beneficiary: O’Keefe v Calthorpe.[7]
    • Taking action against third party only if the following conditions are satisfied (:Lidden v Composite Buyers; Lamru v Kation[8]):
    1. There are 'exceptional circumstances' (no precise definition).
    2. The trustees and other beneficiaries are joined as defendants.
    • If the circumstances are not exceptional, the beneficiary’s only remedy is to sue the trustee for the execution of the trust: Lamru v Kation.[9]
  • Restrain a breach of trust - a beneficiary can take out an injunction preventing the trustee from committing a breach of trust: Yorkshire Miners Association v Howden.[10]
  • Information - all beneficiaries, including those of a discretionary trust, are entitled to information about the trust.[11]

Beneficiaries of a discretionary trust commonly have less rights than those of fixed trusts.

This article is a topic within the subject Property, Equity and Trusts 1.

Contents

Required Reading

Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012, pp. 496-7 [28.31-28.33]; 651-8 [Chapter 31].

Right to Extinguish the Trust

[12] Beneficiaries are allowed to terminate the trust if they satisfy the following conditions (known as the rule in Saunders v Vautier):[13]

  1. Sui juris - legally capable (not a minor etc)
  2. Absolutely entitled to a vested interest (ie, no discretion for the trustee).
  3. If there are multiple beneficiaries, they must be unanimous.[14]

If the conditions are satisfied, the beneficiary can direct the trustee to transfer the property to whoever the beneficiary wishes.[15]

  • Under s 46 of the Trustee Act 1925 (NSW), distribution (or 'appropriation') can occur in specie,[16] provided that:
    1. The beneficiary consents
    2. No contrary intention appears in the trust instrument.
  • If the conditions are not satisfied, the trustee will need to approach the court. Consent will not be automatic, as the courts will consider the interests of others, including persons unborn[17] and the settlor’s next of kin.[18]

It often happens that some beneficiaries are of age and others are not. In that case:

  • If the property is divisible, the trustees of age can call for apportionment of their share,[19] provided the others’ interests will not be prejudiced by such a distribution.[20]

Discretionary Trusts

Note that the rule in Saunders v Vautier does not apply to objects in a discretionary trusts, at least until the trustee exercises his discretion in their favour. This is because their interests are seen as competitive rather than complementary.[21]

  • The objects can nonetheless combine to terminate the trust, if:[22]
    1. The class of objects is closed, and
    2. The trustee holds a trust power of appointment, obliging the trustee to distribute the capital to the listed objects.
    • Thus, this principle would not apply to a ‘common criterion’ situation (only 'list certainty').

Right to Compel Performance of the Trust

[23] Beneficiaries can take action to compel performance of the trust or protect their interests (regardless of whether it is a fixed or discretionary trust). Compelling the trust includes taking action against the trustee, and taking action against third parties.

Taking action against trustees

  • A beneficiary can take action against the trustee and even seek to replace the trustee.[24]
  • This is not to be taken lightly.[25] A trustee will not be replaced because the beneficiary simply wishes it, or because of mere hostiles between the trustee or beneficiary.[26]

Taking action against third parties:

  • A beneficiary is not meant to do this, it is the responsibility of the trustee.
  • However, a beneficiary can only take actions against third parties on behalf of the trust of the following conditions are satisfied:[27]
    1. There are 'exceptional circumstances'.
      • There is no precise definition. Used to be mainly when the trustee has participated in the wrongdoing somehow and thus would be unlikely to prosecute, but is probably wider now.
    2. The trustees and other beneficiaries are joined as defendants.
  • If the circumstances are not exceptional, the beneficiary’s only remedy is to sue the trustee for the execution of the trust.[28]

Right to Restrain a Breach of Trust

[29] A beneficiary can obtain an injunction to prevent a trustee from taking any intended action that would constitute a breach of trust.[30]

  • A breach of trust need not cause ‘irreparable harm’.[31]
  • The right operates in equity’s exclusive jurisdiction, so only equitable defences can be raised.

Right to Possession of the Trust Property

[32] It is mentioned above how the trustee can extinguish the trust provided certain requirements are satisfied. If the trustee has no 'active duties' to perform, he can also call for possession of the trust property.

Right to Information

[33] All beneficiaries, including those of a discretionary trust, are entitled to information about the trust.[34]

  • As mentioned in Duties of Trustees, trustees have a duty to keep accounts for the beneficiaries, or persons authorised by them, failing which the trustee will have to pay for any costs to obtain them.

Rights of Discretionary Beneficiaries

[35] A discretionary beneficiary’s right to the trust property is no more than a right to be considered.[36]

  • As discussed above, objects' interests can only be combined together where there is an obligation to distribute and closed class of objects.[37]

However, a discretionary beneficiary does have the right for things such as compelling the trust, proper administration of it, inspect documents etc.

Lastly, a beneficiary in a discretionary trust will sometimes be able to question the trustee's exercise of discretion. This was discussed in Nicholls v Louisville Investments:[38]

  • Facts: the directors of trustee companies who distributed income significantly favouring their own families, rather than the families of their sisters, and who offered no justification other than the (illusory) fact that ‘they did all the work for the company’.
  • Held: the trustees were held to have breached their trust. While the trust gave them discretionary power, they could not use it to ‘regularly advance their own interests’.

Rights of a Beneficiary of a Gift Subject to Engrafted Trusts

[39]

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End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 1.

References

Property Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

Equity Textbook refers to Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012.

  1. (1841) 49 ER 282.
  2. (1859) 70 ER 423.
  3. (1939) 39 SR (NSW) 426.
  4. (1950) 51 SR (NSW) 95.
  5. [1984] 2 NSWLR 406.
  6. (1936) 54 CLR 572.
  7. (1739) 26 ER 12, Lee v Young (1843) 63 ER 238.
  8. Lidden v Composite Buyers (1996) 67 FCR 560; Lamru v Kation (1998) 44 NSWLR 432.
  9. (1998) 44 NSWLR 432 (Cohen J).
  10. [1905] AC 256.
  11. Spellson v George (1987) 11 NSWLR 300.
  12. Equity Textbook, pp. 496-7 [28.31-28.33].
  13. (1841) 49 ER 282.
  14. Gosling v Gosling (1859) 70 ER 423.
  15. Re Brockbank [1948] Ch 206.
  16. In real form – so the money would be distributed in cash or hard currency.
  17. Berry v Green [1938] AC 575.
  18. Teague v Trustees Executor & Agency (1923) 32 CLR 252.
  19. Whatakane Paper Mills v Public Trustee (1939) 39 SR (NSW) 426.
  20. Manfred v Maddrell (1950) 51 SR (NSW) 95.
  21. Re Weir’s Settlement Trusts [1971] Ch 145.
  22. Sir Moses Montefore Jewish Home v Howell (No 7) [1984] 2 NSWLR 406.
  23. Equity Textbook, pp. 651-654 [35.2-35.4].
  24. Miller v Cameron (1936) 54 CLR 572.
  25. Fay v Moramba Services [2009] NSWSC 1428, [25].
  26. O’Keefe v Calthorpe (1739) 26 ER 12, Lee v Young (1843) 63 ER 238.
  27. Lidden v Composite Buyers (1996) 67 FCR 560; Lamru v Kation (1998) 44 NSWLR 432.
  28. Lamru v Kation (1998) 44 NSWLR 432 (Cohen J).
  29. Equity Textbook, p. 654 [35.5].
  30. Yorkshire Miners Association v Howden [1905] AC 256.
  31. Heavener v Loomes (1924) 34 CLR 306.
  32. Equity Textbook, p. 654 [35.6].
  33. Equity Textbook, pp. 654-5.
  34. Spellson v George (1987) 11 NSWLR 300.
  35. Equity Textbook, pp. 655-8 [35.10-35.13].
  36. Gartside v IRC [1968] AC 553.
  37. Sir Moses Montefore Jewish Home v Howell (No 7) [1984] 2 NSWLR 406.
  38. (1991) 10 ACSR 723.
  39. Equity Textbook, p. 658 [35.14-35.15].
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