Monday, May 28, 2012

Void trusts

Following on from recent posts, a further issue has come up over the last few days which relates to where a discretionary trust does not have any default provisions that apply for the distribution of capital.

The issues in this regard are quite complex, however like earlier posts, the conservative position is clear – i.e. every discretionary trust should ideally have clear provisions that apply for the distribution of capital in the event that a trustee fails to make a valid distribution.

The position in relation to default provisions for income is not as clear – often where there are no fallback provisions for income, an undistributed amount will simply form part of the capital of the trust.

This said, particularly following the High Court’s decision in Bamford, we have seen a number of advisers focus very carefully on all of the core provisions of their client’s trust deeds and the complete absence of a default distribution of capital, or in some instances, a purported default distribution that does not operate effectively, can be a trigger for looking to at least minimise the assets that are acquired in a trust moving forward.

Until next week.