Trustee and beneficiary relationship

Relationship or difference between trustee and beneficiary - FREE LEGAL ADVICE

trustee and beneficiary relationship

Calgary tax and fiduciary services lawyer Dennis Nerland says trustees should consider relational as well as financial matters associated with a trust. Define trustee-beneficiary relation. trustee-beneficiary relation synonyms, trustee- beneficiary relation pronunciation, trustee-beneficiary relation translation. Relationship or difference between trustee and beneficiary answered by expert wills-trusts lawyer. Get free answers to all your legal queries from experienced.

This term refers to the fact that the trustee is acting on its own behalf. A protector may be appointed in an express, inter vivos trust, as a person who has some control over the trustee—usually including a power to dismiss the trustee and appoint another. The legal status of a protector is the subject of some debate. No-one doubts that a trustee has fiduciary responsibilities. If a protector also has fiduciary responsibilities, then the courts—if asked by beneficiaries—could order him or her to act in the way the court decrees.

However, a protector is unnecessary to the nature of a trust—many trusts can and do operate without one. Also, protectors are comparatively new, while the nature of trusts has been established over hundreds of years. It is therefore thought by some that protectors have fiduciary duties, and by others that they do not.

The case law has not yet established this point.

Trustee/Beneficiary relationships

This is the person or persons who creates the trust. Grantor s is a common synonym. Terms of the Trust means the settlor's wishes expressed in the Trust Instrument. A trust deed is a legal document that defines the trust such as the trustee, beneficiaries, settlor and appointer, and the terms and conditions of the agreement. A trust distribution is any income or asset that is given out to the beneficiaries of the trust. A person either an individual, a corporation or more than one of either who administers a trust.

A trustee is considered a fiduciary and owes the highest duty under the law to protect trust assets from unreasonable loss for the trust's beneficiaries. Creation[ edit ] Trusts may be created by the expressed intentions of the settlor express trusts [11] or they may be created by operation of law known as implied trusts.

An implied trust is one created by a court of equity because of acts or situations of the parties. Implied trusts are divided into two categories: A resulting trust is implied by the law to work out the presumed intentions of the parties, but it does not take into consideration their expressed intent. A constructive trust [12] is a trust implied by law to work out justice between the parties, regardless of their intentions.

Typically a trust can be created in the following four ways: In some jurisdictions certain types of assets may not be the subject of a trust without a written document. Three certainties The formalities required of a trust depends on the type of trust in question.

Generally, a private express trust requires three elements to be certain, which together are known as the "three certainties". These elements were determined in Knight v Knight to be intention, subject matter and objects.

trustee and beneficiary relationship

The certainties of subject matter and objects allow the court to administer trust when the trustees fail to do so. These words are construed objectively in their "reasonable meaning", [17] within the context of the entire instrument. A mere expression of hope that a trust be created does not constitute an intention to create a trust. Conversely, the existence of terms of art or the word "trust" does not indicate whether an instrument is an express trust.

The property subject to the trust must be clearly identified Palmer v Simmonds. One may not, for example state, settle "the majority of my estate", as the precise extent cannot be ascertained. Trust property may be any form of specific property, be it real or personaltangible or intangible.

It is often, for example, real estate, shares or cash. The beneficiaries of the trust must be clearly identified, [16] or at least be ascertainable Re Hain's Settlement. In the case of discretionary trusts, where the trustees have power to decide who the beneficiaries will be, the settlor must have described a clear class of beneficiaries McPhail v Doulton. Beneficiaries may include people not born at the date of the trust for example, "my future grandchildren".

Alternatively, the object of a trust could be a charitable purpose rather than specific beneficiaries. Trustees[ edit ] A trust may have multiple trustees, and these trustees are the legal owners of the trust's property, but have a fiduciary duty to beneficiaries and various duties, such as a duty of care and a duty to inform. The trustee may be either a person or a legal entity such as a companybut typically the trust itself is not an entity and any lawsuit must be against the trustees.

A trustee has many rights and responsibilities which vary based on the jurisdiction and trust instrument. If a trust lacks a trustee, a court may appoint a trustee. The trustees administer the affairs attendant to the trust. The trust's affairs may include prudently investing the assets of the trust, accounting for and reporting periodically to the beneficiaries, filing required tax returns and other duties.

In some cases dependent upon the trust instrument, the trustees must make discretionary decisions as to whether beneficiaries should receive trust assets for their benefit. A trustee may be held personally liable for problems, although fiduciary liability insurance similar to directors and officers liability insurance can be purchased. For example, a trustee could be liable if assets are not properly invested. In addition, a trustee may be liable to its beneficiaries even where the trust has made a profit but consent has not been given.

Either immediately or eventually, the beneficiaries will receive income from the trust property, or they will receive the property itself. The extent of a beneficiary's interest depends on the wording of the trust document. One beneficiary may be entitled to income for example, interest from a bank accountwhereas another may be entitled to the entirety of the trust property when he attains the age of twenty-five years. The settlor has much discretion when creating the trust, subject to some limitations imposed by law.

The use of trusts as a means to inherit substantial wealth may be associated with some negative connotations; some beneficiaries who are able to live comfortably from trust proceeds without having to work a job may be jokingly referred to as "trust fund babies" regardless of age or "trustafarians".

Trusts may be created purely for privacy. The terms of a will are public in certain jurisdictions, while the terms of a trust are not. Trusts may be used to protect beneficiaries for example, one's children against their own inability to handle money. These are especially attractive for spendthrifts.

Courts may generally recognize spendthrift clauses against trust beneficiaries and their creditors, but not against creditors of a settlor. Trusts frequently appear in wills indeed, technically, the administration of every deceased's estate is a form of trust.

Conventional wills typically leave assets to the deceased's spouse if anyand then to the children equally. If the children are under 18, or under some other age mentioned in the will 21 and 25 are commona trust must come into existence until the 'contingency age' is reached.

The executor of the will is usually the trustee, and the children are the beneficiaries. The trustee will have powers to assist the beneficiaries during their minority.

In some common law jurisdictions all charities must take the form of trusts. In others, corporations may be charities also. In most jurisdictions, charities are tightly regulated for the public benefit in England, for example, by the Charity Commission. The trust has proved to be such a flexible concept that it has proved capable of working as an investment vehicle: This form of trust was developed by Paul Baxendale-Walker and has since gained widespread use.

Complex business arrangements, most often in the finance and insurance sectors, sometimes use trusts among various other entities e. Trusts may allow beneficiaries to protect assets from creditors as the trust may be bankruptcy remote. For example, a discretionary trust, of which the settlor may be the protector and a beneficiary, but not the trustee and not the sole beneficiary. In such an arrangement the settlor may be in a position to benefit from the trust assets, without owning them, and therefore in theory protected from creditors.

In addition, the trust may attempt to preserve anonymity with a completely unconnected name e. These strategies are ethically and legally controversial. The tax consequences of doing anything using a trust are usually different from the tax consequences of achieving the same effect by another route if, indeed, it would be possible to do so. In many cases, the tax consequences of using the trust are better than the alternative, and trusts are therefore frequently used for legal tax avoidance.

For an example see the "nil-band discretionary trust", explained at Inheritance Tax United Kingdom. Ownership of property by more than one person is facilitated by a trust. In particular, ownership of a matrimonial home is commonly effected by a trust with both partners as beneficiaries and one, or both, owning the legal title as trustee.

In Canada [27] and Minnesota monies owed by employers to contractors or by contractors to subcontractors on construction projects must by law be held in trust. In the event of contractor insolvency, this makes it much more likely that subcontractors will be paid for work completed.

Legal retainer - Lawyers in certain countries often require that a legal retainer be paid upfront and held in trust until such time as the legal work is performed and billed to the client, this serves as a minimum guarantee of remuneration should the client become insolvent. Types[ edit ] Alphabetic list of trust types[ edit ] Trusts go by many different names, depending on the characteristics or the purpose of the trust.

Because trusts often have multiple characteristics or purposes, a single trust might accurately be described in several ways.

For example, a living trust is often an express trust, which is also a revocable trust, and might include an incentive trust, and so forth. The concept of an asset-protection trust encompasses any form of trust that provides for funds to be held on a discretionary basis.

Such trusts are set up in an attempt to avoid or mitigate the effects of taxationdivorce and bankruptcy on the beneficiary. Such trusts may be proscribed or limited in their effect by governments and the courts.


Unlike an express trust, a constructive trust is not created by an agreement between a settlor and the trustee. A constructive trust is imposed by the law as an "equitable remedy". This generally occurs due to some wrongdoing, where the wrongdoer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it. A constructive trust is, essentially, a legal fiction.

For example, a court of equity recognizing a plaintiff's request for the equitable remedy of a constructive trust may decide that a constructive trust has been created and simply order the person holding the assets to deliver them to the person who rightfully should have them.

The constructive trustee is not necessarily the person who is guilty of the wrongdoing, and in practice it is often a bank or similar organization. The distinction may be finer than the preceding exposition in that there are also said to be two forms of constructive trust, the institutional constructive trust and the remedial constructive trust. The latter is an "equitable remedy" imposed by law being truly remedial; the former arising due to some defect in the transfer of property.

In a discretionary trust, certainty of object is satisfied if it can be said that there is a criterion which a person must satisfy in order to be a beneficiary i. In that way, persons who satisfy that criterion who are members of that class can enforce the trust.

In these types, a directed trustee is directed by a number of other trust participants in implementing the trust's execution; these participants may include a distribution committee, trust protector, or investment advisor.

The directed trustee's role is administrative which involves following investment instructions, holding legal title to the trust assets, providing fiduciary and tax accounting, coordinating trust participants and offering dispute resolution among the participants Dynasty trust also known as a 'generation-skipping trust': A type of trust in which assets are passed down to the grantor's grandchildren, not the grantor's children.

The children of the grantor never take title to the assets.

trustee and beneficiary relationship

This allows the grantor to avoid the estate taxes that would apply if the assets were transferred to his or her children first. Generation-skipping trusts can still be used to provide financial benefits to a grantor's children, however, because any income generated by the trust's assets can be made accessible to the grantor's children while still leaving the assets in trust for the grandchildren. An express trust arises where a settlor deliberately and consciously decides to create a trust, over their assets, either now, or upon his or her later death.

In these cases this will be achieved by signing a trust instrument, which will either be a will or a trust deed. Almost all trusts dealt with in the trust industry are of this type. They contrast with resulting and constructive trusts. The intention of the parties to create the trust must be shown clearly by their language or conduct. For an express trust to exist, there must be certainty to the objects of the trust and the trust property. In the USA Statute of Frauds provisions require express trusts to be evidenced in writing if the trust property is above a certain value, or is real estate.

The entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion. At the end of the term, the financial property is transferred tax-free to the named beneficiaries. This trust is commonly used in the U. Combines elements of both fixed and discretionary trusts.

The Importance of the Trustee-Beneficiary Relationship

In a hybrid trust, the trustee must pay a certain amount of the trust property to each beneficiary fixed by the settlor. But the trustee has discretion as to how any remaining trust property, once these fixed amounts have been paid out, is to be paid to the beneficiaries. A resulting trust may be deemed to be present where a trust instrument is not properly drafted and a portion of the equitable title has not been provided for.

In such a case, the law may raise a resulting trust for the benefit of the grantor the creator of the trust. In other words, the grantor may be deemed to be a beneficiary of the portion of the equitable title that was not properly provided for in the trust document. The trust is often run by a committee, and can act similarly to a development agencydepending on the provisions of its charter. A trust that uses distributions from income or principal as an incentive to encourage or discourage certain behaviors on the part of the beneficiary.

The term "incentive trust" is sometimes used to distinguish trusts that provide fixed conditions for access to trust funds from discretionary trusts that leave such decisions up to the trustee. Inter vivos trust or 'living trust': A settlor who is living at the time the trust is established creates an inter vivos trust.

Trusts are created by families for families, most often by parents for children and grandchildren. For beneficiaries whose trust creators are still alive, engaging in some type of family dynamics consulting may help create a safe environment for learning about the purposes of the trust.

Family wealth mission, vision and values statements can help beneficiaries and trustees greatly. When trust creators are unavailable, understanding that a trustee is driven to discern a trust creator's intent can really help those beneficiaries who may be struggling with the loss of a family member, especially where communication may not have been the greatest.

Without anything else, the trustee is required to follow the language of the trust agreement as interpreted by a state's laws. But just because the typical trust agreement is about as impersonal and tax motivated as any agreement out there, it doesn't mean that feelings of love, care and concern weren't the primary motivating factors for the trust's creation.

Some of the beneficiaries who seem unhappiest with the trust structure have a sense of entitlement to the assets. It's understandable that an entitlement mindset would give rise to a lack of appreciation for the concerns that created the conditions around a transfer in trust.

If so, any trust provisions may feel burdensome. On the other hand, some of the happiest beneficiaries understand that the trust was created to enhance their lives. They also understand that gifts with strings are usually better than no gifts at all.

Having an attitude of gratitude, coupled with an understanding of purpose invariably fosters a more workable and harmonious relationship between the beneficiaries and the trustee. While most beneficiaries have a deep appreciation for the trust from which they benefit, they often think to themselves, "I would be much more grateful if the assets had just been given to me outright.

If trust documents are not expressed clearly, many beneficiaries are left to ask, "What was the reason for not just giving me the assets directly?

What are the right things to do with the money? Why does my family seem to resent that I spend money the way I want rather than how they think I should? All too often, the focus at the creation of a trust is family wealth preservation, when the true focus should be family relationship preservation. The question that should be asked, and to which consideration should be given at the time of trust creation is, "Will this trust serve to enhance the lives of its beneficiaries in the manner the trust creator envisions?

What is the money for and what isn't it for? Seven keys to a better beneficiary-trustee relationship: The most productive and satisfying relationships between beneficiaries and trustees may be those in which the beneficiaries are willing to learn and understand how the trust is required to function and where the trustee is willing to teach and mentor the beneficiaries.

When this relationship works, a trust may no longer feel like a burden. Beneficiaries should be willing to: Understand the terms of the trust. Understand that the trustee is a fiduciary. Understand that trusts may have multiple beneficiaries.

Understand basic trust accounting and taxation. Know how to read a trust accounting statement. Know how to most effectively request a trust distribution. Understand the terms of the trust Trustees are often dismayed to find that many of the trust beneficiaries they work with have never read the trust agreement to which they are a beneficiary.

If they have read it, they admit that they really don't understand it. That's not surprising, as most trust documents are filled with technical legal terms and boilerplate language meant to cover any and all possible outcomes and circumstances and must be in compliance with state and federal trust and tax law.

Often, trust documents contain language that takes an experienced tax lawyer or CPA to understand. But, with the considerate assistance of the trustee, beneficiaries can gain a solid understanding of their trust terms. When reading a trust agreement, a beneficiary should start by focusing on the players: Next, they should focus on the provisions around distributions of trust income and principal, along with any guiding language regarding those distributions.

Finally, they should look at the termination provisions and eventual distributions to the remainder beneficiaries. When does the trust terminate, or is it perpetual? What happens at the death of the current beneficiary or the primary beneficiary if there is more than one current beneficiary? Gaining a firm grasp on the primary dispositive terms of a trust is essential for a beneficiary to have intelligent, meaningful conversations about trust distributions with the trustee.

An understanding of the trust terms and guidelines allows a beneficiary to consider in advance whether a distribution request would be reasonable or not. An unreasonable request would be one that the terms of the trust clearly prevent the trustee from granting. A beneficiary with an understanding of the trust terms can bring a request to the trustee with an explanation of how he or she feels the request is reasonable and meets the specific language and intent of the trust.

Understand that the trustee is a fiduciary When beneficiaries understand the role and fiduciary obligations of a trustee, they are much less likely to perceive the trustee as a roadblock.

A person designated as a fiduciary is a person in whom another person has placed a great deal of trust and confidence to manage and protect property or money for the benefit of the beneficiaries. A trustee must always act in accordance with a fiduciary standard of care, which is the highest standard of care.

The duty of care requires a trustee to administer a trust in good faith, exercising powers in the same manner as a prudent person would with "reasonable care, skill and caution. A trustee has a duty of impartiality and must not favor the interests of one beneficiary over those of another. A trustee has a duty to be loyal to the trust creator's wishes as expressed in the trust agreement and to do what the trust creator would do in the same circumstances.

This is why it is so helpful when the trust creator places guiding language in either the trust instrument or other documents.

trustee and beneficiary relationship

A fiduciary must avoid self-dealing or conflicts of interests in which the potential benefit to the trustee is in conflict with what is best for the beneficiary.

When beneficiaries appreciate that the decisions and actions of trustees are based on these fiduciary duties and obligations, there is a greater likelihood that there will be a meeting of the minds rather than misunderstanding and frustration. Understand that trusts may have multiple beneficiaries Whether there is one current beneficiary or multiple current beneficiaries, and regardless of how many remainder beneficiaries there are, a beneficiary must remember that he or she may be only one of the people the trust creator intended to benefit.

trustee and beneficiary relationship

Unless directed otherwise by the trust agreement, the trustee will attempt to be equitable to all beneficiaries. If current beneficiaries are mindful that they are sharing the trust resources and that the trustee is attempting to consider the interests of all beneficiaries and not breach the duty to be impartial, beneficiaries may gain insight as to why the trustee has made particular decisions.

Trust law - Wikipedia

Also, current beneficiaries need to realize that any requests for distribution of assets from the trust will have an impact on the other beneficiaries and that those beneficiaries may not appreciate or understand this.

Being sensitive to this may prevent difficulties from arising between beneficiaries. When there are multiple beneficiaries of a trust, each beneficiary will have competing and sometimes conflicting interests.