You aren’t my beneficiary – are you??

Certainty as to object, that is, who the beneficiaries of a trust are is one of the three certainties required to evidence a valid trust.  See Davis v White.

However, what is the position where it is clear that a person or company or trust is a beneficiary – it is just that had the settlor turned his or her mind to the class of beneficiaries it might have been drafted a little more carefully.  How would you respond as a trustee if the settlor’s son’s ex-wife’s new partner’s company asked for trust documents?  Or for an advance from the trust?  What about the company set up by your son’s ex-wife and her girlfriend in which both own 50% of the shares? What about the second husband of the settlor’s birthmother (now deceased)?  The trust settled by the settlor’s niece’s grand father that names here as a beneficiary?

The initial response might be to ignore the request as absurd.  But is it?  The correct response might be more properly to review the trust deed – and perhaps sooner might be better than later.  The above scenarios are all possible from the following class of beneficiaries:

“Discretionary Beneficiaries”:

(a) settlor

(b) brother or sister or the issue of any brother or sister of the Settlor

(c) the parents of the settlor

(d) the children and remoter issue of the settlor

(e) any spouse, widow, widower, former spouse of any beneficiary described in (a) to (e) of this definition

(f) any person who is or has lived with a beneficiary described in (a) to (e) in a relationship in the nature of marriage

(g) any trust that includes amongst its beneficiaries (contingent or otherwise) any Beneficiary

(h) any company in which any Beneficiary directly or indirectly holds not less than 50% of the issued share capital

(i) any association, club, institution, organisation or trust not carried on for the private profit of any person whose funds are applied wholly or principally to any charitable, civic, community, philanthropic, benevolent, religious or cultural purpose whether in New Zealand or elsewhere.

Large often ill-considered classes of beneficiaries are not uncommon.  Where there is no ranking in the trust deed – how can or should trustees differentiate between the clamouring masses?  The Law Commission has postulated in the review of the law of trusts that perhaps only the beneficiaries intended to benefit be given information.  However, based on the above – how would the trustees know?

And what liability might the trustees have in the event they disregard on the basis of “I’m sure that that was what the settlor intended?”  How would they know?  If not intended to benefit why is the person included in a specified class of beneficiaries?

Could a class of beneficiaries be so wide that identification is impossible and the trust fails as a result.  I have seen discretionary trust deeds where the beneficiaries are  “The citizens of New Zealand?”

Certainty as to who can benefit is essential to a valid trust – also one presumes the settlor has an idea who should benefit – and who should not.  Why then the detective work some times to figure this out?  And the risk of challenge from some one never intended to benefit who nevertheless is part of a class of beneficiaries that ranks equally with the settlor and the settlor’s children who might be presumed to be the intended beneficiaries.

Go forth and review your classes of beneficiaries.

See  Ouch and Trustees “fortunate” to be liable for only 50%.

Also see Re Merona Trustees Limited, which relates to application for directions pursuant to section 133 of the Trusts Act as to whether a child of one of the settlors was a beneficiary of the Trust as either a member of the following class of discretionary beneficiaries:

(ii) any of the children of the Settlors;

Or as a member of the class of final beneficiaries, where (h) “the Final Beneficiaries” shall mean the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper”.

The trustees had received a number of opinions.  One issue was whether Raymond was entitled to those opinions.  In considering this Associate Judge Paulsen noted:

[21] No discovery order has been made. Had standard discovery been ordered, that would have required the plaintiffs to disclose documents of actual and direct relevance. However, relevance of the legal opinions is accepted by the plaintiffs to the extent they concern the status of Raymond as a beneficiary of the Trust.
[22] I agree with the plaintiffs that Raymond’s status as a beneficiary has not been established, and he cannot assert an entitlement to trust information as a beneficiary under the Trust. His entitlement to trust information must be limited to material relevant to the subject matter of this proceeding.

References:

• Davis v White [2016] NZHC 1626
• Review of the law of trusts
• Re Merona Trustees Limited [2022] NZHC 724