A new client - UK resident non UK domiciled - is the sole beneficiary of a US trust.
The Trust deed provided that ‘the Trustees may distribute the net income and principal in such manner, to such extent and at such time as Trustees, in its sole discretion, deems appropriate to provide for her health, maintenance, education and support. Trustee shall accumulate any net income not so distributed and add it to principal’
Happy above would give her discretionary benefit only.
However, it then goes on to say ’ in addition, after the beneficiary attains age 35, Trustee shall distribute to her so much of the principal, even to the extent of the whole of it, as she requests in writing any any time or times’.
Would forum readers take that view that;
a) her entitlement remains discretionary. Like most discretionary Trusts a beneficiary could eventually draw out all the capital, however this trust has put an age to it, or,
b) having attained 35, the principal is now hers and it remains in the Trust as a bare trust.
Income is currently being paid out. Question is whether; it would be a payment from a non UK trust (retaining none of its identity) or whether the income of the Trust is now hers regardless and retains its identity.
I should add that whilst there is no further mention of the right to income, even after attaining 35, the trust deed does provide instructions on her death should that death occur whilst ‘assets are being administered hereunder’.
Looking at the question through the perspective of E&W trust law, I would agree it would appear the trust fund is now held on bare trusts for the beneficiary absolutely as they have now attaining age 35. However, we are told that it is a US trust, and so the trust provisions need to be considered in the light of the proper law of the trust. I anticipate this would be the law of one of the 50 States in the US, which may not be consistent with E&W law.
Where are the trustees based/resident? Whilst looking at the UK tax consequences, I suggest that it is also necessary to look at the tax consequences of where the trust is resident for tax purposes. It may be that regardless of the tax residence of the beneficiary now entitled, any income or gains are subject to tax in that jurisdiction, so that the beneficiary might receive a tax credit in the UK.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
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