Time for New Year resolutions – at least for discretionary trusts

It is that time again, when the trustee must resolve how the income of the trust is to be distributed.

But in all the hustle and bustle of financial year end mistakes can be made and sometimes it’s the basics that inadvertently trip advisers up.

Before the resolutions are made it is a good time to pull out the deed and actually read it!  Yes, as simple as this sounds often this is overlooked in the rush of financial year end.  Although it is not the most convenient time it may save significant time later if any potential issues are highlighted before it is too late.

One of the first hurdles to overcome is actually locating a copy of the deed.  Although a lost deed is not an ideal situation there are some options to overcome this.

If the deed is available, make sure you have a full copy including all amendments and variations.  It is quite likely that older trusts will have been updated to keep up with legislative changes.

The definition of income clause is the first port of call in reviews at financial year end.  This is a fundamental consideration when drafting the distribution resolutions.

Next step is establishing who are valid beneficiaries.  You need to beware of a ‘notional’ settlor clause which can exclude certain beneficiaries.

Other items on your year end checklist are checking in case the trust has vested, whether there is a hard-wired resolution date, or whether the resolutions must be in writing, streaming of dividends and capital gains.

But most importantly, always remember that all trusts are unique so copying a resolution from another trust, or even copying last year’s resolution and assuming it was right, can be dangerous.

Mistakes in resolutions can be costly so taking the time at year end to read the deed and consider all these issues will be time well spent.

Author – David Marschke