Trustees: stop, look and distribute- Part V
This is the concluding part in a five-part mini-series by solicitor, about the duties and risks of being a trustee. To read parts one to four, click here.
In this final part, we identify the legalities required for a beneficiary to receive the assets.
The trustee will have to consider whether or not each beneficiary is able by law to receive trust assets. This is particularly relevant to children (namely minors under the age of 18) and persons whom lack mental capacity.
Children and property
A child cannot take or hold a legal estate in land or any other type of property. However, there is no restriction in England and Wales on a child owning shares in a company that has been incorporated in England and Wales.
The trustee must, however, check the articles of association of the relevant company to see if there are any specific restrictions placed upon child ownership of shares in that company. It is quite common for shares to be registered in the name of the child’s parents/legal guardian to overcome the child’s legal limitations until they reach the age of majority at 18.
A child who is married at the age of 16 with the consent of his legal guardian may by law receive income.
Once again, the trustee should check the trust instrument to see what powers they have to pay income or capital to, or for the benefit of, the minor. The trust instrument could also be checked if a parent or guardian is authorised to accept trust assets on behalf of the child beneficiary. The parent or guardian will have authority to receive payments on behalf of the child (under section 3 Children Act 1989) although having parental responsibility does not enable a person to deal with land on behalf of a child beneficiary.
An application may be made to the court to use its statutory powers over trust assets in which a beneficiary has a beneficial interest by making vesting orders, making the beneficiary the legal owner of that property. This is usually because it is worthwhile in the circumstances to give the issue a little push to make that happen sooner rather than later.
A person lacking mental capacity
A person lacking mental capacity is unable to receive trust assets. However an attorney under a registered enduring power of attorney and lasting power of attorney may do so on their behalf. The trustee would approach and work with the attorneys to arrange a distribution, although it is likely that a separate trust will have to be set up to protect the assets for the beneficiary.
It may be possible to apply to the Court of Protection for direction, particularly in circumstances where there is a doubt if the beneficiary lacks capacity.
Now that the five part mini-series has concluded….
Who would be a trustee? By way of an analogy, think of a trustee as a downhill skier at the top of a giant slalom course. He has to navigate a myriad of duties as if they are slalom gates (see parts one and two).
Continuing with this analogy, what if we transpose the personal safety of the skier with the personal liability that being a trustee attracts? Before embarking on a course the trustee, just like the skier, has to examine his safety equipment (see part three). In the case of the trustee, this will mean considering those protections and indemnities which are expressly given, those which may be provided by a court upon making an application for directions and those rights that exist in law and in equity.
By way of the first obstacle, the trustee has to consider the precise requirements of the trust instrument and the intention and wishes of the settlor, and give one last look at the adequacy and effectiveness of the deed of trust in meeting that intention (as detailed in part two).
Then, before making a distribution, they must consider the classes of beneficiaries and their respective entitlements, the tax consequences of the distributive options available and whether the beneficiary can receive assets (see parts two, four and above).
The potential pitfalls do not end at the home straight. The trustee must make provision for the knowable unknowns: liabilities that may or may not crystallise in the future, such as major creditors or environmental fines. Thankfully the court can assist, allowing the trustee to make an application for directions in those circumstances.
A trustee who makes a distribution without taking into account these issues is opening themselves up to (sometimes significant) personal liability.
If you need advice about the management of trusts or taxation, contact GA’s wills, trusts and probate team on 01752 203500.
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