Sally and Jim had a family trust that they set up many years ago.  They had set up the trust so that their children were the discretionary beneficiaries and the final beneficiaries.  At the time they set it up, they had only just had their first child, and the trust simply held their family home.

Earlier this year they bought a rental property in the name of the trust, but only thought to ask their original lawyer to look at the trust documents to check that everything still met their needs when they had been renting the property for some months.

They were very surprised when their lawyer pointed out that because Sally and Jim were not discretionary beneficiaries, they couldn’t personally be paid any money from the trust (which included income from the rental property), which was problematic for them.

It is important to be aware of the different types of beneficiaries that may be mentioned in your trust deed:

Discretionary beneficiaries are beneficiaries who the trustees are entitled to distribute the trust fund to during the lifetime of the trust (this may be in relation to capital and/or income).  It is up to the trustees’ discretion as to who receives what share of the trust assets.

Final beneficiaries are the people who will receive the trust fund when the trust is wound up (shut down).  This is generally in set shares nominated in the trust documentation.

In Sally and Jim’s situation, because of the way the trust was set up their only option was to transfer the rental property to a new trust, which was a costly and time-consuming process.

If you already have a trust check with an experienced Trusts lawyer if it meets your needs in regard to new assets you want to put in the trust.