When considering a request by a beneficiary for a distribution from a Trust Fund, a Trustee should first ensure that they have power under either the terms of the trust instrument or statute to carry out the requested action.
As a matter of law, a Trustee must exercise any relevant power for the purpose for which it was given, affording proper consideration to the matters which are relevant and excluding from consideration matters which are irrelevant.
A Trustee may wish to consider whether or not:-
- the Trust has sufficient funds to justify the request;
- the distribution is in the best interests of all of the Beneficiaries of the Trust;
- the request has merit; " the distribution will affect the ongoing purpose of the Trust;
- there are any risks involved in making the distribution; and
- professional advice including legal and tax is needed
A Trustee should ensure that it gives clear consideration to the above and in particular ensure that it is happy that it has complied with the requirements of this duty.
Where it is decided not to make a distribution to a beneficiary further to their request, a Trustee should notify, where possible, the beneficiary of the reasons for that decision.
Any decision taken by a Trustee should be documented, whether in trustee minutes or in a separate document, setting out:-
- the reasons for the decision;
- the factors taken into account;
- the reasons for taking such factors into account;
- any factors ignored or deemed irrelevant; and
- the reasons such factors have been ignored or deemed to be irrelevant.
If a distribution is made, the Trustee should obtain appropriate due diligence documentation in accordance with AML/CFT legislation for the beneficiary to verify their identity in advance of making any payment.
In the next part of this series we discuss the issues arising when a beneficiary requests information in relation to a trust.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.