Trustees: stop, look and distribute- Part II
This is the second in a five part mini-series about the duties and risks of being a trustee. To read part one, click here.
In this second part, Angelo Micciche details what a trustee should consider before making a distribution of trust assets.
First steps
Before making a distribution of trust assets, the trustee must consider whether they have the power to make such a distribution. To do this they should review the trust document (instrument, deed or will), which will set out the terms of making a distribution and, in the case of a discretionary trust, the settlor’s letter of wishes. The latter, however, is purely for guidance and is not legally binding.
The period prior to making a distribution is also the last opportunity a trustee and their advisers may have to assess the appropriateness and efficacy of the trust instrument itself and its provisions. They can also determine whether or not it is necessary to vary the trust to correctly implement the intentions of the settlor, for example, are the trust arrangements tax efficient?
The transfer and distribution of trust assets, bringing an end to a trust, or the trustee’s involvement in it, requires careful planning. Who are the beneficiaries and how and when do they become entitled to receive trust assets?
Duties:
The trustee must be aware of their duties to the trust and the beneficiaries, particularly before making a distribution. A result of those duties is consideration by the trustee of what indemnities he may have, or may yet need, to receive before making a distribution. They may have potential, personal liabilities, or have live or contingent claims brought against them by creditors of the trust donor. They may themselves be bound by indemnities that they gave to a previous trustee.
Tax consequences:
The trustee should take into account the tax consequences of each distribution. Ordinarily there will be no breach of duty when the trustee obtains and follows the advice of a competent advisor, whether or not that advice turns out to be wrong. It is therefore important for the trustee to obtain competent and reputable advice from a tax lawyer or chartered accountant before making a distribution. This does not however, change the fact that a trustee’s liability is personal and cannot be delegated. It is for advisers to advise, but trustees, taking account of that advice and all other relevant factors, must make the final decision themselves.
Preparation:
If a distribution is to be undertaken, preparation can be made for the procedures or formalities that will be required. This includes deeds of assignment or transfers in respect of (for example) land, life policies, shares or boats. Notices may be prepared for dispositions of leasehold land. The Trust Registration Scheme would have to be informed by 31st January of the tax year after any changes are made, such as where there is a change of the lead trustee.
The insurance policies covering trust land and chattels should be highlighted to the intended recipients so a transfer of those policies can be arranged.
Up to date invoices for services rendered to the trust should be chased up and obtained, to give the trustee a better picture of what his liabilities are prior to distribution.
In summary:
Having looked at all of the above issues, the trustee can then decide whether or not they can or should progress, delay or prevent the distribution of assets, or the trust from ending.
Look out for part three to find out about trustee protection.
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 to make a claim against one, please contact me directly via angelo.micciche@GAsolicitors.com or call 01752 203500.
Angelo Micciche, solicitor, wills, inheritance and trust disputes