Reviewing trusts Flashcards
Reviewing a trust after death or illness of trustee
After death of trustee
- Should not affect trust property or management
- Remaining trustees can continue
o New trustee can be appointed
After illness of trustee
Loss of mental capacity may come on gradually
o Could choose to retire
o Settlor cannot dismiss a trustee who has lost capacity
o Can be replaced under Trustee Act 1925 without applying to court providing they do not have beneficial interest in trust property
o If have LPA/EPA attorney cannot take over as trustee
o Other trustees should seek legal advice
Reviewing a trust after death or illness of beneficiary
After death of beneficiary
o Other beneficiaries may be entitled to greater share of trust property
- Or deceased’s share may go to their estate/ follow
rules of intestacy
o If pre-22 March 2006 IiP / IPDI their share is included in their estate
- Trustees pay any tax due
Reviewing a trust after death of settlor
Trustees will receive policy proceeds
Should check IHT consequences before distributing them
Reviewing a trust after bankruptcy of trustee, settlor or beneficiary
• Trustee
o Usually required to retire under terms of trust
o If pension/charity trustee legally obliged to retire
• Settlor
o Statutory trust almost totally protected from creditors
o Less protection for non-statutory trusts
o Court set aside trust of ‘dishonest settlor’
• Beneficiary
o Court can give trustee power to allow sale of trust property for impoverished beneficiary
Reviewing a trust after change of relationship status of beneficiary
• Marriage
o New spouse/civil partner may become potential beneficiary
• Separation
o Spouse/civil partner may no longer be included
o Or if main beneficiary is their spouse/civil partner then they may not be included themselves anymore
• Divorce
o Matrimonial Causes Act 1973
Can vary trusts of marriage settlement
o Trust assets are usually taken into account in divorce
settlement
Reviewing a trust after change in income or wealth
•If settlor’s wealth has increased, may wish to gift more into trust
o Would need to consider CGT/IHT liability
o May need to be a separate trust if this would affect
existing trust’s tax status
• If settlor’s income altered, may wish to up/lower ongoing contributions into trust
• If trust income has increased / decreased
o Lead to changes of payments to beneficiaries/
investment strategy
• If beneficiary’s income changes, may be less or more reliant on trust income
• Different beneficiaries may have different needs
• Some trustees may pay same amount to all beneficiaries
• Beneficiary may require capital to buy first home / attend uni
Trusts and disputes
• More common with discretionary than bare trusts
• May arise due to decisions made / not made by trustees, performance of trust investments, actions made / not made by trustees, requests by beneficiaries not
being met, conflicts between beneficiaries
• Arbitration process might be stipulated in the trust deed to resolve disputes
• For cases involving families, mediation may be preferred to legal action
• Beneficiaries could call for trust to come to an end if conditions required under Saunders v Vautier are met
• If not, legal proceedings can be brought
Reviewing a trust in light of economic and legislative changes
• Economic
o Market conditions
o Must keep investment under review
• Law
o Should review trust regularly
• Tax
o Rates may change
o Exemptions may change
Trust review checklist
- Investments in names of all trustees
- Trust deed and trust law being complied with
- Investments all appropriate and suitable
- Economic / tax changes meaning a change investment is required
- Changes to settlors, trustees, beneficiaries
- Changes to beneficiaries’ capacity for loss / risk appetite
- Changes to beneficiaries’ income / capital needs
- Deaths of settlor / beneficiary
- Terms of trust still appropriate / flexible enough
- Do beneficiaries have special needs?
- Can trustees distribute assets?
- Are trustees still appropriate?
- Any 10 year anniversary / exit charges due?
