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James Creevy, current as of: 20 September 2022.
Our ever-shifting social and economic environment continues to fuel a marked increase in requests to change beneficiaries in discretionary trusts.
Beneficiaries are regularly covered in Acis All Areas. This included our August issue where we explored the classes of eligible and ineligible beneficiaries in the Acis Discretionary Trust, as well as the takers in default. In this month’s Acis All Areas, we’ll dig a little deeper and outline the processes involved in changing beneficiaries in a discretionary trust.
There are a number of motivations for beneficiaries to be added or removed from a trust, including:
Typically, the beneficiaries in a discretionary trust can be changed by preparing a Deed of Amendment. However, many older discretionary trust deeds fail to make it clear whether a specific person can be removed and/or appointed as a beneficiary. This is usually because the trust deed doesn’t contain an explicit power to appoint and/or remove beneficiaries – a power which has been in the Acis Discretionary Trust Deed for many years.
In the absence of an explicit power to remove and/or appoint beneficiaries, the amendment power may be used for this purpose, but only if that power is broad enough. Where the schedule of a trust deed lists the beneficiaries, the amendment power should ideally extend to the schedule in order to change the beneficiaries by way of an amendment. If not, the trustee’s ability to change the beneficiaries may be restricted.
Before deciding whether to appoint an additional beneficiary to a trust, we’d always recommend reading the deed to determine whether the intended, new beneficiary already falls within the description of beneficiaries (by way of their relationship to the already named beneficiaries).
If the person doesn’t fall within the existing description of beneficiaries, or if there is a specific desire (or bank request) to name them, a power to appoint additional beneficiaries in the trust deed can be used.
Conversely, while it may seem logical to remove beneficiaries who have passed away, the wider ramifications of such an amendment need to be considered. The removal of a beneficiary who has passed away is generally not legally required. In addition, the removal of a beneficiary may substantially limit the pool of other potential beneficiaries that flow from their relationship with named beneficiaries.
While a clear and concise beneficiary removal clause can be utilised to remove a beneficiary by way of a Deed of Amendment, a Deed of Release can also be considered, especially to combat any potential uncertainty (in the deed or otherwise). This type of deed circumvents the previously mentioned limitations that may be present in a trust deed as the beneficiary relinquishes any right or interest they may have as a beneficiary of the trust. This does, however, require that the beneficiary themselves sign the Deed of Release, which may not always be practical or possible.
A Deed of Release also demonstrates the intention of a relinquishing beneficiary to be irrevocably removed as a beneficiary of a trust. The irrevocability of the Deed of Release is intended to ensure the removal is permanent.
Common Scenarios where a Deed of Release is used:
Common Scenarios where a Deed of Amendment to remove and/or appoint beneficiaries is used
The law surrounding the acquisition and surrender of trust interests differs from state to state. While changes may be completed without triggering resettlement, there could be other tax and duty consequences that need to be considered.
If you’re considering a change to the beneficiaries in a trust, the Acis Legal Services team can assist. Don’t hesitate to contact us with any enquiries.
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