Discretionary Will Trust
Discussion
Having a lively debate at present with a relative's solicitor! Is it a duty (not best practice, or advisable, or maybe, or could do if they feel like it; rather an actually legally-enforceable duty) for a sole trustee of a discretionary will trust to consult the potential beneficiaries (remember, in discretionary will trusts there are no actual beneficiaries until the trustee gives a potential beneficiary something) before doing anything with the trust or is it, as it says on the tin, entirely at the discretion of the trustee what they do with the fund provided that it does not cause damage to the trust or the beneficiaries as a whole (legal precedent seems to indicate that the potential beneficiaries when taken as a whole do have what can be described as an interest in the trust, but not individually).
What may complicate this is that the sole trustee is also a potential beneficiary; i.e. they are named in the will as being in the class who can possibly inherit.
What may complicate this is that the sole trustee is also a potential beneficiary; i.e. they are named in the will as being in the class who can possibly inherit.
RayPike said:
Having a lively debate at present with a relative's solicitor! Is it a duty (not best practice, or advisable, or maybe, or could do if they feel like it; rather an actually legally-enforceable duty) for a sole trustee of a discretionary will trust to consult the potential beneficiaries (remember, in discretionary will trusts there are no actual beneficiaries until the trustee gives a potential beneficiary something) before doing anything with the trust or is it, as it says on the tin, entirely at the discretion of the trustee what they do with the fund provided that it does not cause damage to the trust or the beneficiaries as a whole (legal precedent seems to indicate that the potential beneficiaries when taken as a whole do have what can be described as an interest in the trust, but not individually).
What may complicate this is that the sole trustee is also a potential beneficiary; i.e. they are named in the will as being in the class who can possibly inherit.
Very broadly (because the detail is important, and can affect the position materially), a trustee of a discretionary trust need not consult the discretionary beneficiaries as a matter of duty, whether in relation to investment decisions, realising the trust assets or distributing the trust assets. What may complicate this is that the sole trustee is also a potential beneficiary; i.e. they are named in the will as being in the class who can possibly inherit.
As a matter of practice though, a nervy trustee might wish to obtain the fully informed consent of all the discretionary beneficiaries before doing something, in order to protect him/herself against a subsequent claim of wrongdoing. But that's a cover your ass-driven approach, not a duty-driven approach.
Is it a genuine discretionary trust (where the trustee has absolute discretion whether or not to make a distribution of any amount to any combination of members of a defined class) or a trust with contingent interests (say property held on trust for A provided that A lives to be 30, if he doesn't, property to B on a similar condition, if he doesn't etc...)?
Greg66 said:
Is it a genuine discretionary trust (where the trustee has absolute discretion whether or not to make a distribution of any amount to any combination of members of a defined class) or a trust with contingent interests (say property held on trust for A provided that A lives to be 30, if he doesn't, property to B on a similar condition, if he doesn't etc...)?
Genuine. There are 3 named (potential) beneficiaries - one being the trustee."The trustees may appoint that they shall hold the Trust fund for the benefit of any Beneficiaries on such terms as the trustees see fit."
Greg66 said:
OK, well as above then.
Who wins the argument between you and the solicitor?
Me I think :-) The solicitor emailed me this: "A trustee has a duty to consult potential beneficiaries."Who wins the argument between you and the solicitor?
I don't understand the situation properly but it comes down to my Aunt whose husband died some time ago and she was named as executor and trustee in the will. There are a couple of stepkids from husband's first marriage who he named as executors. There was another friend also appointed as executor and trustee, but she fell ill around the time of the husband's death and announced she was not able to act as either executor or trustee and has since renounced/resigned/whatever it's called. As the kids were disputing god knows what with my aunt, they delayed probate for ages and during that time, unsurprisingly I suppose, she fell a bit short of money. She therefore used some of the money in the estate account she controlled (as she was sole trustee and would eventually be in charge of doing things with the money after probate I guess) to carry out some repairs on the house before winter came (last winter, that was).
Turns out now that the kids gleefully seized upon this use of the money (on repairs to a house they eventually get half of anyway I think) to launch a claim to remove her as an executor, which succeeded somehow as the judge said she'd done something wrong technically. Not sure what. The ongoing argument with her solicitor is over the fact that the kids are now threatening to have her removed as trustee too and the solicitor is pretty much saying they're guaranteed to achieve that due to "A trustee has a duty to consult potential beneficiaries".
My aunt's argument is that she only used the money as the kids had delayed probate so long she'd not got the necessary funds to do the repairs, that she was sole trustee and could do what she liked with the fund and that she would reasonably have been expected to inherit that amount as widow anyway. The case is yet to come to court - I'm just trying to provide some moral support to my aunt! From my limited reading on the subject I can't see she's done a lot wrong apart from spend the money before probate or whatever, but as it's a discretionary trust of which she's sole trustee, I think it's pretty reasonable to say all she's done is given herself an advancement on what she'd get anyway, which the will allows her to do as a trustee.
The devil is in the absolute detail.
A Trustee-Executor must follow the Trust Deed with care - this is generally the overall guiding document - ignore at your peril.
A fully discretionary Trust - is just that - discretionary as to distributions - however that does not mean funds can be used for "anything"
A "duty" to consult beneficiaries - no - but is it prudent - sometimes.
A Trustee-Executor must follow the Trust Deed with care - this is generally the overall guiding document - ignore at your peril.
A fully discretionary Trust - is just that - discretionary as to distributions - however that does not mean funds can be used for "anything"
A "duty" to consult beneficiaries - no - but is it prudent - sometimes.
TVRnutcase said:
The devil is in the absolute detail.
A Trustee-Executor must follow the Trust Deed with care - this is generally the overall guiding document - ignore at your peril.
A fully discretionary Trust - is just that - discretionary as to distributions - however that does not mean funds can be used for "anything"
A "duty" to consult beneficiaries - no - but is it prudent - sometimes.
It's largely gobbledegook to me! I've seen a copy of the will which creates the trust and I'm told there is no trust deed. It seems to be generally accepted that the trustees (there were two, now just one) have absolute discretion about how they use the trust. I think the intention (well it was the last time it was discussed) was to have it operating as a "rainy day fund" for when property maintenance was needed or my aunt needs a new washing machine in the house or something. anything left over gets split between the kids on Aunt's death. I don't believe she's been left anything cash-wise directly and there have been murmurings about an inheritance action claim though? I don't really have that much idea to be honest - just what I've read online.A Trustee-Executor must follow the Trust Deed with care - this is generally the overall guiding document - ignore at your peril.
A fully discretionary Trust - is just that - discretionary as to distributions - however that does not mean funds can be used for "anything"
A "duty" to consult beneficiaries - no - but is it prudent - sometimes.
Pretty sure that a trust needs a minimum of two trustees, so one can't act in any case.
Edit: my bad, it's not a minimum, but generally accepted as best practice. As trustees have a legal requirement to act ito treat all beneficiaries equally, if you are also a beneficiary, it's hard to argue impartiality if you're the sole trustee.
I think a suggestion of potential legal action, if needed, would surely push the current trustee towards getting another trustee involved?
Edit: my bad, it's not a minimum, but generally accepted as best practice. As trustees have a legal requirement to act ito treat all beneficiaries equally, if you are also a beneficiary, it's hard to argue impartiality if you're the sole trustee.
I think a suggestion of potential legal action, if needed, would surely push the current trustee towards getting another trustee involved?
Edited by ellroy on Friday 3rd June 20:42
Best practice is more than one trustee, and an Independent Trustee (ie one that cannot benefit).
There is NOT a legal requirement to treat Beneficiaries equally - just as there is not a legal requirement for a will leaving the estate equally.
The requirement is to treat the beneficiaries in accordance with the Trust Deed or the Will.
In this instance it would appear to be a testamentary Trust (created on death) - and accordingly the will is the governing deed.
As with all matters - family-death-money = a perfect recipe for a disaster.
In terms of protecting Trust Assets (as in a house) - there is plenty of case law as to what is and is not acceptable.
There is NOT a legal requirement to treat Beneficiaries equally - just as there is not a legal requirement for a will leaving the estate equally.
The requirement is to treat the beneficiaries in accordance with the Trust Deed or the Will.
In this instance it would appear to be a testamentary Trust (created on death) - and accordingly the will is the governing deed.
As with all matters - family-death-money = a perfect recipe for a disaster.
In terms of protecting Trust Assets (as in a house) - there is plenty of case law as to what is and is not acceptable.
You state that in a discretionary Trust there are no beneficiaries until the Trustee gives someone benefit. This is incorrect. There must always be beneficiaries whether named, a class or a long stop or else the Trust fails.
Generally in a discretionary Trust the Trustee has sole discretion and does not have to consult the beneficiaries unless the declaration or deed says otherwise, instances like this is why I prefer to have a protector who is impartial who has to provide certain consents for distributing assets.
The Trustee must act in the best interests of the beneficiaries, current and potential future beneficiaries if there is a class that goes that far i.e issue and remoter issue. i.e a Trustee must be mindful of beneficiaries that are not yet born but upon birth will be automatic beneficiaries. I have seen Trustees sued decades down the line for a previous decision made by the Trustees that disadvantaged the now living beneficiaries.
If a beneficiary thinks the Trustee is not acting in the best interests of all beneficiaries then a beneficiary can suit for breach of trust.
As a beneficiary you are within your right to demand a copy of the Trust document, the financial statements of the Trust and further information about the management of the assets therein.
Generally in a discretionary Trust the Trustee has sole discretion and does not have to consult the beneficiaries unless the declaration or deed says otherwise, instances like this is why I prefer to have a protector who is impartial who has to provide certain consents for distributing assets.
The Trustee must act in the best interests of the beneficiaries, current and potential future beneficiaries if there is a class that goes that far i.e issue and remoter issue. i.e a Trustee must be mindful of beneficiaries that are not yet born but upon birth will be automatic beneficiaries. I have seen Trustees sued decades down the line for a previous decision made by the Trustees that disadvantaged the now living beneficiaries.
If a beneficiary thinks the Trustee is not acting in the best interests of all beneficiaries then a beneficiary can suit for breach of trust.
As a beneficiary you are within your right to demand a copy of the Trust document, the financial statements of the Trust and further information about the management of the assets therein.
DSLiverpool said:
Whoever drew up the trust must have put in that a minimum of two trustees are named and if one drops out they are replaced. Check this isn't a regulation that's been missed.
I am a discretionary trustee and our investment work is not shared with beneficiaries.
There is no requirement for two trustees in the will. All named beneficiaries together have a right to the money, any individual beneficiary has no right according to what I've read. The potential beneficiaries are basically in conflict with each other.I am a discretionary trustee and our investment work is not shared with beneficiaries.
RayPike said:
DSLiverpool said:
Whoever drew up the trust must have put in that a minimum of two trustees are named and if one drops out they are replaced. Check this isn't a regulation that's been missed.
I am a discretionary trustee and our investment work is not shared with beneficiaries.
There is no requirement for two trustees in the will. All named beneficiaries together have a right to the money, any individual beneficiary has no right according to what I've read. The potential beneficiaries are basically in conflict with each other.I am a discretionary trustee and our investment work is not shared with beneficiaries.
I wish these bloody things didn't exist. They make it all too easy for a devious sod to get a confused old person to change a Will in a way that they never intended.
We had one of these in our family, a few weeks before she died my Gran got a visit from her daughter, which turned into a nice trip to her solicitors ( the daughters mind you ) the Will was duly changed to a fully discretionary trust with the daughter named as one beneficiary of 7. Of course she happened to be the only person to be both a trustee and beneficiary.
Don't worry my Gran was told it's in a trust and so everyone will benefit. Except that b
ks. Because the whole point is that whether and who benefits is entirely at the discretion of the trustees.
Of course there was more than one trustee, there was her, her solicitor and her husbands best man, so that's all very impartial.
If she'd tried to get my gran to change her will directly she would never had agreed. Except she thought she was doing what was in her best interests. In the case of my Aunt and her daughter SWT is certainly a fitting label.
We had one of these in our family, a few weeks before she died my Gran got a visit from her daughter, which turned into a nice trip to her solicitors ( the daughters mind you ) the Will was duly changed to a fully discretionary trust with the daughter named as one beneficiary of 7. Of course she happened to be the only person to be both a trustee and beneficiary.
Don't worry my Gran was told it's in a trust and so everyone will benefit. Except that b
ks. Because the whole point is that whether and who benefits is entirely at the discretion of the trustees.Of course there was more than one trustee, there was her, her solicitor and her husbands best man, so that's all very impartial.
If she'd tried to get my gran to change her will directly she would never had agreed. Except she thought she was doing what was in her best interests. In the case of my Aunt and her daughter SWT is certainly a fitting label.
Timmy40 said:
I wish these bloody things didn't exist. They make it all too easy for a devious sod to get a confused old person to change a Will in a way that they never intended.
We had one of these in our family, a few weeks before she died my Gran got a visit from her daughter, which turned into a nice trip to her solicitors ( the daughters mind you ) the Will was duly changed to a fully discretionary trust with the daughter named as one beneficiary of 7. Of course she happened to be the only person to be both a trustee and beneficiary.
Don't worry my Gran was told it's in a trust and so everyone will benefit. Except that bks. Because the whole point is that whether and who benefits is entirely at the discretion of the trustees.
Of course there was more than one trustee, there was her, her solicitor and her husbands best man, so that's all very impartial.
If she'd tried to get my gran to change her will directly she would never had agreed. Except she thought she was doing what was in her best interests. In the case of my Aunt and her daughter SWT is certainly a fitting label.
They do seem more confusing than they need to be. Allegedly they help out with inheritance tax issues too. No idea about it myself. I did read an article on a solicitor site somewhere that said that any trustee(s) had to consider all beneficiaries when deciding what to do with the trust fund, they can't just keep it all themselves. Mind you, that did strike me as a potential area for solicitors to get rich arguing - how do the trustees proves that they have considered the merits of all beneficiaries, for example? I suppose they'd need some kind of record of a trustees meeting (hard if there's just one trustee!) at which the minutes showed a clear and sensible discussion about the merits of all other beneficiaries before deciding "I'm getting all the money so I can buy some shoes and handbags, it's what Gran would have wanted."We had one of these in our family, a few weeks before she died my Gran got a visit from her daughter, which turned into a nice trip to her solicitors ( the daughters mind you ) the Will was duly changed to a fully discretionary trust with the daughter named as one beneficiary of 7. Of course she happened to be the only person to be both a trustee and beneficiary.
Don't worry my Gran was told it's in a trust and so everyone will benefit. Except that b
ks. Because the whole point is that whether and who benefits is entirely at the discretion of the trustees.Of course there was more than one trustee, there was her, her solicitor and her husbands best man, so that's all very impartial.
If she'd tried to get my gran to change her will directly she would never had agreed. Except she thought she was doing what was in her best interests. In the case of my Aunt and her daughter SWT is certainly a fitting label.
Small point of order but as a rule solicitors tend to be at utter pains to ensure that these things are dealt with properly and full minutes taken, even if they are the only trustees.
Almost everyone has a warped notion that almost all are on the take (which is bullcrap but doesn't stop people saying it or picking out the one or two a year that get nailed for it) and we have massive indemnity insurance that costs us £10k's every year just to protect against the odd dhead that wouldn't rather cut off their heads than touch Client Account inappropriately.
If it isn't in the file it didn't happen. It's in our interests to note everything fully, more so if sole trustee, and one of the reasons we have to spend so much time on files not actually doing anything directly, doing all the notes and ticking all the boxes, as without that we get hammered if there is a dispute. Even if the file is near or actually perfect you can still get hammered.
Almost everyone has a warped notion that almost all are on the take (which is bullcrap but doesn't stop people saying it or picking out the one or two a year that get nailed for it) and we have massive indemnity insurance that costs us £10k's every year just to protect against the odd d
head that wouldn't rather cut off their heads than touch Client Account inappropriately.If it isn't in the file it didn't happen. It's in our interests to note everything fully, more so if sole trustee, and one of the reasons we have to spend so much time on files not actually doing anything directly, doing all the notes and ticking all the boxes, as without that we get hammered if there is a dispute. Even if the file is near or actually perfect you can still get hammered.
It rumbles on.
I can't quite work out if this is a Lionel Hutz-esque piece of work or secretly genius on behalf of the solicitor of the stepchildren. They are now arguing that the stepchildren are also trustees of the discretionary will trust! Their reason for doing so appears to be that they have always thought they were and - get this - apparently my Aunt's solicitor allegedly said something in court during a directions hearing that they think confirmed their opinion and their argument is that becuase he said so, it's true basically! Shame he didn't therefore say my Aunt was the rightful Queen of England or something useful, eh?
Seriously, is this a legal masterstroke I'm missing the point of here... "your solicitor said so, so it's true, nyah!" ?
I can't quite work out if this is a Lionel Hutz-esque piece of work or secretly genius on behalf of the solicitor of the stepchildren. They are now arguing that the stepchildren are also trustees of the discretionary will trust! Their reason for doing so appears to be that they have always thought they were and - get this - apparently my Aunt's solicitor allegedly said something in court during a directions hearing that they think confirmed their opinion and their argument is that becuase he said so, it's true basically! Shame he didn't therefore say my Aunt was the rightful Queen of England or something useful, eh?
Seriously, is this a legal masterstroke I'm missing the point of here... "your solicitor said so, so it's true, nyah!" ?
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