Establishing the Beneficiaries of a Trust

Beneficiaries

Should the beneficiaries be not specifically referred to by name, they could be referred to by class, such as “children”. However, the description of the class has to be sufficiently precise so as to determine whether any particular person is or is not a member of the class. If, however, the trustee has discretion as to whom and in what proportions among a class he or she will distribute the trust property, a situation could arise when the trustee would not be able to determine who all the possible beneficiaries are, but need only determine whether any particular beneficiary is within the class. An exception to this rule is that the objects of a charitable trust should always be certain.

Therefore, when establishing a trust, the settlor has to make it clear that he or she intends to establish a trust, specifically describe the property which is to be the subject matter of the trust, and identify the beneficiaries beyond any doubt.

Trusts are of two types, revocable or irrevocable. The terms of a revocable trust are such that it can be revoked or amended, and the property comprising the trust assets can be returned to the settlor. As opposed to this, an irrevocable trust cannot be revoked or amended by the settlor.

Trustees, Duties and Responsibilities

Basic duties and responsibilities of trustees are enumerated in common law. While administering the assets of the trust, trustees are subject to fiduciary obligations given hereunder:

1) The Duty of Care:
Under the common law, the standard of care for a trustee is the same as a reasonable and prudent business person would exercise in conducting his or her own affairs.

2) The Duty to Act Personally:
Generally, a trustee cannot delegate his or her decision making power. It is possible for the trustee to get advice, but the responsibility for the ultimate decision remains with the trustee.

3) The Duty to Avoid Conflict of Interest and Act Solely for the Benefit of the Beneficiaries:
The trustee has to act solely in the best interests of the trust beneficiaries and avoid any conflict between his or her own interests and those of the beneficiaries. A trustee should not profit personally from the administration of the trust. Besides, a trustee must act impartially between different beneficiaries, known as the “even hand” principle. Trustees should not favour one class of beneficiaries over another or one beneficiary of a class over another, but should treat all beneficiaries equally. For instance, trustees are required to hold an even hand between the income and capital beneficiaries of a trust.

If it is the intention of the settlor or testator to provide the trustees with maximum flexibility, discretion and protection in exercising powers of management, it can be done by conferring powers that are to be exercised solely in accordance with the absolute discretion of trustees and by including specific provisions relieving the trustees from liability for damage or loss suffered by the trust. Having regard to the fiduciary status of the trustee, it is likely that in certain situations the terms of discretionary and limited exculpatory provisions could be regarded as repugnant to that status and void on that ground.

Trusts in Estate Planning

For estate planning purposes, the trust is often the perfect vehicle because of its several unique features making it particularly suitable. Among its features, the most important are the separation of legal and beneficial ownership, the ability to create successive beneficial interests, and thereby, the ability to control the property over a considerable number of years. Besides that, there is the flexibility provided by conferring a variety of discretionary powers affecting the selection of beneficiaries, the types and timing of benefits to be enjoyed by them, and the investment and management of the trust property.

Some of the more common uses of trusts in estate planning are detailed below:
1) To provide for the maintenance and education of infants or other persons to whom it is desired to give the enjoyment of property without powers of control or management. The power of the trustees to act as owners of the trust property in their transactions with third parties provides the most efficient legal instrument for overcoming the beneficiaries’ natural legal and other incapacities with respect to property;
2) To provide a measure of financial independence for an adult child while delaying the time at which the child would obtain full management and control over the property;
3) To provide for the care and maintenance of individuals unable, for medical or other reasons, to manage their own affairs;
4) To provide for the care and maintenance of a spouse during his or her lifetime, and controlling the disposition of the trust property on the spouse’s death. This would also ensure protection for children of a former marriage;
5) To implement legitimate tax planning objectives, like income splitting, capital gains, and so on for minor beneficiaries; and
6) To set money aside for the education of children and/or grandchildren.

Call one of the experienced lawyers at Levy Zavet PC (Levy Zavet) today to help you plan or administer an estate.