Trusts play a vital role in estate planning and wealth management, allowing individuals to pass on their assets to beneficiaries while maintaining control over those assets. However, there may come a time when you need to remove a beneficiary from a trust due to various reasons, such as a breakdown in the relationship or changes in circumstances.
In this article, we will provide you with a step-by-step guide on how to remove a beneficiary from a trust ensuring compliance with legal requirements and protecting the interests of all parties involved.
What is a Trust?
A trust is a legally binding relationship where a trustee holds assets for one or more beneficiaries. The most common form of trust is a discretionary trust, also known as a family trust. In a discretionary trust, the trustee is given the power to decide which beneficiaries benefit from the trust.
What is a Beneficiary?
A beneficiary is an individual who receives the deceased’s assets, normally in the form of money or property, following the administration of a Will. There are usually multiple beneficiaries to a Will. Beneficiaries benefit from the trust as an individual or a company.
Furthermore, they can be under the age of 18 or be lacking the capacity to make legal decisions. Once they receive the trust property, they have full legal rights over it.
How to Remove the Beneficiaries from a Trust
1. Trust Deed
The Trust Deed is always the first place to look when making a change to a trust. The Trust Deed explains how the Trust can be changed in relation to the beneficiaries, including how they can be removed. The trust deed will normally provide two methods for removing a beneficiary. First, the beneficiary can sign a document renouncing their interest as a beneficiary. Second, The trustee can use their discretionary power to remove the beneficiary.
2. Discretionary Trust
Many Trust Deeds have a basic definition of what constitutes a ‘beneficiary.’ This allows for a beneficiary to be easily included or excluded. If it is a discretionary trust, you may not have to do much to exclude a beneficiary. The trustee has the discretionary power to exclude beneficiaries from the trust. However, the trustee must act in good faith and for the benefit of the beneficiaries.
3. Execute a Deed of Variation
If you wish to remove someone as a beneficiary, you can do so by executing a Deed of Variation. The Deed of Variation must follow the instructions provided in the Trust Deed. The Trust Deed outlines the rules for the trust, including how the trust may be amended. To change the trust deed, you must execute a Deed of Variation. This document updates the relevant section of the original trust deed. It then forms part of the documentation of your discretionary trust and details how the trust deed has been changed over time. It is important that you receive legal advice before changing a trust deed, as not following the rules can result in problems. These problems can include being liable for additional taxes.
What are the grounds for the removal of a trustee?
There are a number of reasons for the removal of a trustee, the primary reasons being
- Unfitness for office: If a trustee is deemed unfit to carry out their duties effectively.
- Confusion or misunderstanding of duties: If a trustee is unclear about their responsibilities or misunderstands their role as a trustee.
- Financial insolvency: If a trustee becomes financially insolvent, such as declaring bankruptcy.
- Breach of trust: If a trustee breaches their fiduciary obligations or commits a breach of trust.
- Inappropriate investment of trust assets: If a trustee fails to invest the trust’s assets appropriately.
- Mental incapacity: If a trustee’s mental incapacity hinders their ability to manage the trust effectively.
- Protection of beneficiaries’ interests or trust assets: If removing the trustee is necessary to safeguard the beneficiaries’ interests or protect the trust assets.
- Unresolvable disagreement with co-trustees: If a trustee has an irreconcilable disagreement with their co-trustees.
FAQs
Can a beneficiary of a trust be changed
In the case of a discretionary trust, it is common to modify the beneficiaries by creating a Deed of Amendment.
Conclusion
In conclusion, removing a beneficiary from a trust does not have to be a complicated process. If you have any questions or need further guidance, ask an estate lawyer today.
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