Trustees: stop, look and distribute- Part IV
This is the penultimate article in a five part mini-series about the duties and risks of being a trustee. You can read part I here, part II here and part III here.
In this fourth instalment, Angelo Micciche explains what a trustee should consider about the beneficiaries before making a distribution, in addition to the factors highlighted in earlier articles in the series.
Identification
At the very outset of their role and the creation of a trust, the trustee will undertake identity checks on all known beneficiaries. Their names and addresses will be required so the trustee may contact them, and a note should be made of their dates of birth so it may be known as to when they reach their majority. This is usually 18 but could be 21 or 25 years of age if those are the ages of entitlement (see below) stipulated in the trust documents.
Maturity and capability
It is worth noting at this point that somewhere on the list of creating a trust, up there or thereabouts with tax considerations, is to leave distributing assets to beneficiaries for when they are mature and responsible enough. This is usually after they have reached the age of 18 and can handle the receipt of trust assets and ensure they are a true benefit.
What if, at the time set for distribution, the trustee can see that the beneficiary is too immature and irresponsible for a distribution to be of real benefit to them? Or perhaps the beneficiary is a drug user or otherwise vulnerable? Consideration could be made by the trustee to create a separate trust for the beneficiary to take account of their circumstances. In this scenario, the transfer to the new trust would be considered a distribution.
Fair warning
Another duty of the trustee is to provide information to the beneficiaries about the trust. It is sensible to warn them in advance about distributions, so any potential difficulties regarding the transfer of assets can be ironed out.
Bankruptcy
A bankruptcy search against the name of a beneficiary can ascertain if a trustee is declared bankrupt. If so, a distribution may have to be paid elsewhere. If it is not, the trustee could be personally liable. If the settlor dies before the beneficiary becomes bankrupt, all of the beneficiary’s assets vest in the trustee in bankruptcy. If the settlor’s death occurs after the beneficiary becomes bankrupt, at first instance any property received vests in the bankrupt beneficiary, who then has 21 days to notify the trustee in bankruptcy.
Foreign nationals
The domestic tax authorities of the state of a beneficiary who is a foreign national may require notice of a distribution. An example of this is the requirement of US taxpayers to notify the acquisition of foreign-held assets to the IRS pursuant to the Foreign Account Tax Compliance Act (FACTA).
Look out for the concluding part to read about the legalities required for a beneficiary to receive the assets.
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, contentious probate