Guide on Trust Funds – Part 7
Why can’t a sole trustee be a sole beneficiary?
The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries.
If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances.
However, a trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.
Can an estate be named as a beneficiary?
No. A person’s estate does not exist until a person dies. So an estate cannot be named as a beneficiary as an estate is not a person.
Can I name a charitable entity as a beneficiary?
Yes, you can name a charitable entity as a beneficiary – but you must be specific (or else the trust might be void for uncertainty). You need to decide exactly who you wish to benefit and in what capacity they are acting (eg: company, trustee etc.) so you can
specifically name the body that will benefit from the trust.
For example, you can’t just name ‘the green movement’ as the beneficiary. You need to name the entity precisely, for example: “World Wide Fund for Nature Australia”.
Can a trust be a beneficiary under the discretionary trust?
No (but see next 2 questions). A trust cannot be a beneficiary under a discretionary trust because the law says a trust is not a separate legal person. For example, the ‘John Smith Family Trust’ cannot be named as a beneficiary of another trust.
Even so, the trustee of a trust, in his, her or its capacity as trustee, is capable of being a beneficiary of a trust – see next question.
Can a trustee be a beneficiary under a discretionary trust?
Yes, the law allows a trustee to be a beneficiary of a trust – as long as you include the trustee’s name and their capacity. For example:
‘John Smith in his capacity as the trustee of the John Smith Family Trust’ In this case, the trustee is effectively a beneficiary of the discretionary trust for the beneficiaries of the trustee’s own trust.
(The trust itself cannot be named as a beneficiary as it is not a legal entity.).
Does the settled sum have to be transferred into a bank account or can it be settled with cash?
It is preferable to transfer the settled sum into a bank account. However, the settled sum does not have to be transferred into a bank account.
As long as the settled sum is kept separate from the other property of the trustee.
Why can’t a beneficiary transfer their “interest” under a discretionary trust to someone else?
A beneficiary can’t transfer their “interest” under a discretionary trust to someone else because until the trustee resolves to make a distribution in favour of that beneficiary, (or any beneficiary) that beneficiary’s “interest” isn’t a real “interest” or “right”. Instead, it is what the law calls a “mere expectancy” – which can’t be transferred.