Beneficiaries are the people for whose benefit a trust has been established. They may be named individuals, or they may fall within a wider class, such as “children”, “grandchildren”, or other family members.
It is important for trustees to understand exactly who the beneficiaries are. Many people assume the beneficiaries are limited to themselves and their children, only to find the Trust Deed includes a wider or different group than expected.
In this article we outline why knowing your beneficiaries matters, what information they may be entitled to, and some practical issues trustees should keep in mind.
Understanding who the beneficiaries are
The best place to start is the Trust Deed. It should identify the beneficiaries by name or by class and may separate them into different categories.
Discretionary beneficiaries are people who may be considered by the trustees for distributions of income or capital, however they do not have an automatic right to receive anything.
Final beneficiaries are those who may be entitled to receive trust property when the trust comes to an end, depending on the terms of the Trust Deed.
Trustees should understand these categories before making decisions about distributions, disclosure of information, or the future of the trust.
Why the beneficiary list matters
A Trust Deed may include a broader class of beneficiaries than intended. This can create practical issues, as trustees may need to consider the interests of people they did not expect to be involved.
If the beneficiary class is too wide, it may be possible to amend it, depending on the terms of the Trust Deed.
Trustees should not assume the beneficiaries are limited to immediate family. The deed should be reviewed carefully, and advice obtained if there is any uncertainty.
Providing information to beneficiaries
The Trusts Act 2019 introduced important expectations around the provision of information to beneficiaries.
In general, trustees are expected to provide basic trust information to beneficiaries, unless there is a valid reason not to. Beneficiaries may also request further information, such as a copy of the Trust Deed or other trust records.
This does not mean every document must be provided. Trustees must consider requests carefully and record their reasons for any decision.
Disclosure can be sensitive in family trusts, particularly where it may affect relationships or expectations about inheritance. A careful and considered approach is important.
Can trustees treat beneficiaries differently?
Trustees often have broad powers to distribute trust income or capital, but they must act in accordance with the Trust Deed and their duties under the Trusts Act.
Trustees have a duty to act impartially, however this does not always mean beneficiaries must be treated equally. Trustees may be able to take account of individual circumstances, such as health, education, housing, or financial need.
Trustees should make sure their decisions are properly considered and recorded.
Beneficiaries who live overseas
Care should be taken before making distributions to beneficiaries who live overseas.
An overseas beneficiary may be taxed on distributions received from a New Zealand trust, and the way a distribution is recorded can affect the tax outcome.
Specialist tax advice should be obtained before distributions are made to overseas beneficiaries.
Beneficiary rights
Beneficiaries may have the right to receive basic trust information, request further trust information, ask trustees to consider a distribution, and expect trustees to act responsibly and in accordance with their duties.
If a beneficiary has concerns about how a trust is being administered, they may be able to seek assistance from the court.
Can beneficiaries end a trust early?
In some circumstances, beneficiaries may be able to bring a trust to an end early.
If all beneficiaries are adults, have full legal capacity, and agree that the trust should be terminated, the trustees may be required to wind up the trust and distribute the assets.
Legal advice should be obtained before taking steps to terminate a trust early.
Our experienced Trust Management team can support you to administer and maintain the effectiveness of your trust, ensuring it is robust and compliant. Reach out to us to arrange a review of your trust, or to discuss our Trust Management service.
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The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.
