HI there, I am not a solicitor and instead work in financial services with a focus on estate planning. It is however some time since I have done my STEP qualification and I have a simple question that I think I know the answer to but would appreciate clarification for those who are involved in this type of stuff on a daily basis.
Once a beneficiary of a bare trust reaches 18 clearly the trustees have a duty to advise the beneficiary of the trust’s existence and if the beneficiary wants assets paid to them they have a duty to distribute the assets. However what if the beneficiary is still happy for the trustees to manage and maintain legal title? I presume it is possible for the trust to continue in its current guise rather than the trustees have to pay everything out to the beneficiary even if they do not want (or need) it?
Once they attain 18, the assets are the beneficiary’s for all purposes and the trust ceases. Yes, legal title can remain in the name of the trustees, who will then be mere nominees, but they can only take action on anything if they have the beneficiary’s instructions.
The activity of holding the assets may be a regulated activity, depending upon the status of the former trustees.
If the former trustees do not advise the beneficiary of their entitlement, how can the beneficiary comply with their tax reporting obligations? A failure to inform could render the former trustees complicit in the avoidance of tax.
There is no reason why the beneficiary cannot agree to not call for the property to be transferred to him/her (until say a later age or subject to the provision of notice to the trustees requiring hand over).
I think that where there is a bare trust in place, once the beneficiary reaches the age of 18 he or she can demand the transfer of the assets. If that does not happen for any reason, the bare trust will carry on. At this point, the trust would, I believe, continue as a simple nominee arrangement. The trustees would still have the management powers conferred on them by the trust deed and the general law.
Yes, that is right.
The same, broadly, is what you have with a discretionary investment management portfolio, where the investments are held in the name of the investment manager’s nominee company.
The trustees need to be very clear about their remit and the basis on which they are investing: they should discuss with the beneficiary such things as attitude to risk, likely needs, preferences for difference types of investments, taxation, etc: similar to the questions a discretionary investment manager would ask.
Our understanding is that the trustees, as you have said, have a duty of care to the beneficiary. Unless there are good reasons not to, the trustees should inform the beneficiary of their entitlement when the beneficiary attains age 18. Failure to do so could potentially be a breach of trust.
If all are in agreement though, we see no reason for the trust, and the investment, not to continue until the beneficiary, or the trustees, are ready to make a distribution.
The beneficiary should also be made aware of his tax liabilities from the trust, as these may change as he gets older.