Trustees: stop, look and distribute – Part I
Distributing trust assets can be full of perils and pitfalls for trustees. This five part series, written by wills, inheritance and trust disputes solicitor Angelo Micciche, will help trustees to navigate a safe (and legal) path.
A trustee must review many factors and circumstances before parting with trust assets. The reasons for this are split below into three main headings to make it easy to digest, although often the reality is that these issues require consideration at the same time and are invariably linked.
- Distribute and be damned?
Various examples are given in case law of situations where a distribution of trust assets has created or posed a problem.
A methodical approach, forward planning and taking competent advice, can assist the trustee in complying with duties before making a distribution of trust assets. This should ensure they do not jeopardise the trust or attract personal liability, such as from disappointed creditors or the trustee in bankruptcy.
Before getting to a situation where they may safely distribute trust assets, the trustee will have to consider various issues and take steps beforehand to take them into account, or to avoid them. This will be looked at in further articles in this series.
- What is distribution and when does it take place?
Distribution is the term given to a trustee parting with (also known as disposing of) the assets of a trust. Distributions can occur for various reasons.
Nothing lasts forever and trustees and their status are no exception. Trustee have legal title over trust assets so, when they cease in their role and retire, they have to transfer the legal title to their successor trustee. There may also be circumstances where the trust assets are transferred to the trustees of another trust, perhaps one that is better placed to carry out the purpose of the original trust.
Distribution, or disposal, is more commonly understood to be the process of a trustee transferring assets to the beneficiaries of a trust, either during the life of the trust or at its end, when the final trust assets are distributed.
Other reasons for making a distribution could include:
- All of beneficiaries reaching 18 years of age or older
- All adult beneficiaries (with legal capacity) decide to wind up the estate
- The person who had the benefit of trust property during their life (the life tenant) dies, requiring a transfer of that property to those for whom the trust was made (the remaindermen)
- The duties of a trustee
The manifold duties of the trustee have to be observed throughout their office, and this is still the case prior to distribution and upon termination of the trust. It would be hoped that prior to distribution the trustee has already, for example, brought the trust assets in and has them under control.
Duties particularly relevant to trustees prior to distribution include:
- Ascertaining and following the wishes of the settlor
- Obeying the trust instrument
- Duly considering the extent of their powers and working impartially within the constraints of those powers in good faith and in the interests of the beneficiaries
- Distributing the right amount to the correct, entitled beneficiaries.
The trustee may not avoid doing these things in fear of later receiving notice of an additional or alternative claim upon the trust assets.
Read Part Two to find about the first steps you need to take as a trustee.
If you need advice about the management of trusts or taxation, contacts GA’s wills, trusts and probate team on 01752 203500.
If you need advice regarding the removal of a trustee, or a claim against them if any of the issues stated do not go to plan, please contact me directly via angelo.micciche@GAsolicitors.com or call 01752 203500.