In certain circumstances, a trustee may want to remove a beneficiary from a trust. This could be because the trustee feels that other beneficiaries have a greater need for funds, or the beneficiary in question is not able to manage payments for their own benefit.
We answer the question: can a trustee remove a beneficiary from a trust? and look at the role of the trustee and beneficiary.
What is a Trust?
A trust arises when an individual, known as a settlor, instructs one or more individuals, known as trustees, to manage funds, property or other assets for the benefit of one or more beneficiaries.
There can be several advantages to putting assets into a trust, including:
- Protecting the assets from third parties, such as creditors, spouses in a divorce situation and tax authorities, although trust funds are not necessarily beyond the reach of any of these
- Managing funds for a beneficiary who might not be capable of doing this themselves
- Providing for several beneficiaries according to their needs over a period of time, for example, by setting up a Will trust for grandchildren
- Providing money for someone who might lose the right to certain benefits, were they to receive a lump sum
What Duties Does a Trustee Have?
Trustees have a range of duties and obligations, including:
- To read and understand the trust document, which could be a trust deed or Will, and to abide by its terms
- To protect and administer the trust assets and exercise reasonable care when doing so
- To act impartially when dealing with beneficiaries
- To act in the best interests of the beneficiaries
- To keep adequate records and accounts
- To ensure legal compliance, including filing trust returns
- Not to profit from the trust in any way unless the trust deed or Will expressly states otherwise
What Powers Does a Trustee Have?
Trustees also have certain powers when dealing with the trust fund and its beneficiaries, including:
- The power to invest
- Authority to employ professionals where appropriate
- Authority to ensure trust assets
- The power to distribute trust funds and capital to beneficiaries
A professional trustee can invoice the trust for work they have carried out, but a lay trustee cannot make any charge.
What Rights Does a Beneficiary of a Trust Have?
Trust beneficiaries have fairly limited rights but are entitled to the following:
- To be told if they are a discretionary beneficiary to a trust
- To see the trust deed or Will that establishes the trust
- To see other relevant documents, such as a deed of appointment of a trustee or a deed of variation of the trust, unless there is a valid reason why they should not
- To be treated fairly and have their best interests considered by the trustees when decisions are made
- To see trust accounts, unless the trustees believe that this is not in their best interests
- To apply to the courts if assistance is needed
- To apply to the courts for the removal of a trustee
Discretionary beneficiaries do not have any right to receive income or capital, as it is up to the discretion of the trustees to distribute this in accordance with the trust document and any letter of wishes written by the settlor.
Can a Trustee Move a Beneficiary from a Trust in the UK?
A trustee cannot usually remove a beneficiary from a trust, although in some circumstances this may be possible. This includes when the trust is invalid for some reason or where the beneficiary has exercised undue influence over the settlor to benefit from the trust.
If the trust deed or Will allows a beneficiary to be removed at some point, then a trustee can do this, provided that they comply with the terms of the document.
If the trust is discretionary and the trustees believe that a beneficiary does not need funds as much as other beneficiaries or that it would not be in a beneficiary’s best interests to receive funds, for example, if they are dealing with addiction, then the trustees can decide not to provide them with funds.
How Do You Remove a Beneficiary from a Trust?
The first step in deciding whether it is possible to remove a beneficiary from a trust is to speak to an expert trust solicitor. This is a complex area of law, and it is important to understand the strength of the case and the best course of action.
Evidence will need to be gathered showing that the settlor was coerced or pressured by the beneficiary in question or showing the grounds on which the trust deed or Will is invalid.
How Do You End a Trust?
The trust deed or Will may state how the trust can be ended. For example, if all of the discretionary beneficiaries reach the age of 18, the trustees may be able to wind up the trust and distribute any remaining assets between the beneficiaries.
There is a strict process for the trustees to follow in terminating a trust, including preparing accounts and notifying HMRC.
Do You Have to Pay a Beneficiary of a Discretionary Trust?
If a trust is discretionary, then there is no obligation for the trustees to pay any particular beneficiary. However, they should have regard to both the trust deed or Will and any letter of wishes made by the settlor.
The trustees can decide when to make payments, how much to pay, whether to distribute income or capital and whether to impose conditions on the payments.
Where unequal distributions are made between beneficiaries, the trustees should be able to justify this.
It may be that some beneficiaries have a greater need for funds, that funds need to be retained in case of future needs or that the trustees feel a distribution would not be in a beneficiary’s best interests.
Trustees are not required to provide beneficiaries with information explaining why they have made the decision that they have; however, if a case were to reach court, their reasoning could be examined. It can also help to avoid disputes and misunderstandings if beneficiaries are kept reasonably well-informed.
Contact Our Trusts Solicitors
If you have concerns over the administration of a trust and you would like to speak to an expert trusts solicitor, contact us today, and we will be happy to help.
For information on our related services, see our Wills, trusts and probate page.
To speak to one of our expert Wills solicitors, ring us on 0330 173 3980, email us at info@witansolicitors.co.uk or fill in our contact form, and we will talk through your situation with you and discuss how we can assist.
