Rights and Liabilities of the Beneficiary

Introduction

A beneficiary is the person for whose benefit a trust is created. The Indian Trust Act, 1882 provides several rights to protect the beneficiary’s interest. It also imposes certain liabilities in specific situations.

Meaning / Definition

A beneficiary is a person who enjoys the benefit of the trust property. He is the real owner (beneficial owner), while the trustee holds the property on his behalf.

Modes or Types

Rights of the Beneficiary

Right to rents and profits

The beneficiary is entitled to receive rents and profits arising from the trust property, subject to the terms of the trust (Section 55).

Right to specific execution

The beneficiary can compel the trustee to carry out the intention of the settlor (creator of the trust) as per the trust deed (Section 56).

Right to transfer of possession

Where all beneficiaries are competent (legally capable) and agree, they can demand transfer of the trust property to themselves (Section 56).

Right to inspect documents

The beneficiary can inspect and take copies of:

• Trust deed
• Title documents
• Accounts of the trust (Section 57)

Right to transfer beneficial interest

A beneficiary can transfer his interest to another person if he is competent to contract (Section 58).

Right to sue for execution of trust

If:

• No trustee exists, or
• Trustees fail to act,

the beneficiary can approach the court for execution of the trust (Section 59).

Right to proper trustees

The beneficiary has a right to ensure that the trust is managed by competent persons. Improper persons include:

• Insolvent persons
• Persons residing abroad
• Minor

(Section 60)

Right to compel performance

The beneficiary can compel the trustee to perform his duties or restrain him from committing breach of trust (Section 61).

Right against wrongful purchase

If a trustee wrongfully buys trust property, the beneficiary can:

• Get the property restored
• Repay purchase money with interest (Section 62)

Right to follow trust property

The beneficiary can trace (follow) trust property:

• Into the hands of third persons
• Into converted forms (e.g., money from sale)

Exceptions:

• Cannot claim against a bona fide purchaser (good faith buyer) without notice (Sections 63–66)

Right in case of wrongful conversion

If trustee wrongly converts property:

• Beneficiary can claim the proceeds
• Can claim charge (right over property) if mixed with trustee’s property

Right in case of re-acquisition

If trustee wrongfully transfers property and later re-acquires it, the property again becomes subject to trust (Section 65).

Right against misuse in partnership

If trustee uses trust property in a partnership:

• Trustee is liable for breach
• Other partners are liable only if they had notice (knowledge) (Section 67)

Liabilities of the Beneficiary

Though the Act mainly provides rights, liabilities arise in certain cases:

• Beneficiary must repay money when property is restored (e.g., wrongful purchase cases)
• Beneficiary may be liable where he gains advantage from breach of trust
• Beneficiary must act in good faith while dealing with trust property

Practical Example

A creates a trust for B. The trustee sells the property without authority and deposits money in his account.

B can:

• Claim the sale proceeds
• Follow the money into the trustee’s account
• Recover the amount even if converted into another asset

Summary

• Beneficiary is the real owner of trust property
• Has rights to income, inspection, transfer, and enforcement
• Can sue trustee and protect trust property
• Can follow property into third-party hands (with exceptions)
• Can recover property in case of breach of trust
• Liabilities arise mainly when beneficiary gains from breach or receives restored property