Do you have trust issues? Removing beneficiaries
Be reasonable with the withdrawal!
In the final part of our series on trusts, we look at the removal of beneficiaries from discretionary trusts and how the courts have approached this area of law in recent years.
Beneficiaries can only be removed where there has been a bona fide exercise of power by a trustee in accordance with the trust deed.
Any attempt to remove beneficiaries for any purpose other than those specified in the trust deed may result in a fraudulent exercise of fiduciary power, rendering the removal void.
Can a trustee delete beneficiaries?
The terms of the trust deed will state whether a trustee can remove a beneficiary. In many cases, a specific power is given to the trustee to do this. This can often be done without the agreement or consent of the beneficiary.
If there is no specific power, the trustee can often use the power to amend or vary to revoke a beneficiary.
In exercising its power, a fiduciary is required to act responsibly and in good faith. Precautions must be taken to ensure, among other things, that the syndic does not fail in his duties.
Wrongful dismissal of a beneficiary
If a trustee abuses his power under the trust deed, the beneficiary may seek removal of the trustee through court intervention.
The Court will examine the trustee’s reasons for exercising discretion to determine whether:
- he gave real and genuine consideration to the exercise of discretionary power; and
- the trustee had an ulterior or illegitimate purpose.
The trustee must also strictly comply with the trust deed. If the trustee, for example, has the power to revoke a general beneficiary, but uses that power to revoke a beneficiary specified or namedthen this exercise of power is beyond the terms of the act and will be invalid.
Key Takeaways for Trustees
Recent cases confirm that the purpose, scope and proper exercise of a fiduciary’s power are all important considerations when it comes to removing beneficiaries.
Minimizing the risks to the trustee in such a scenario can be as simple as:
- read the terms of the trust deed and understand the specific powers granted to the trustee;
- ensure that the trustee has a genuine reason and an appropriate purpose for removing a beneficiary;
- clearly document the reasons and decisions of the trustee; and
- get the trust deed drafted upfront, so he considers appropriate power and mechanism to revoke beneficiaries.
Despite these practical steps, it is recommended to seek professional advice as we find that changing family dynamics and wealth transfer increase the complexity of discretionary trusts, as well as the risks.
This article was written with the help of law graduate Jessie Langhammer.