The Life of a Trust Part Six: Termination of The Trust
There are a number of ways in which a Trust may end. This may involve action taken by the Trustees, the Settlor, the Beneficiaries, a third party or the Court. It may involve a positive exercise of an express power, or simply because the Trust no longer holds any assets.
The Trustees have a duty to determine whether the Trust has come to an end and, if so, who is entitled to the Trust assets. There are a number of considerations before the Trustees finally distribute the Trust assets.
Events of termination
A Trust may terminate by effluxion of time, (the Trust has reached the end of a defined Trust period).
The Settlor may reserve a power of revocation or the Trustees or Beneficiaries, those who together are entitled to the whole of the benefit of the Trust fund and who are of full age and not under any disability, may bring the Trust to an end.
The Trustees should diarise and plan for any known future events of termination.
The Trustees must ascertain and pay any outstanding debts and liabilities and consider if any tax consequences arise on termination of the Trust. Professional tax advice should be obtained where necessary and considered and documented.
The Trustees have a duty to identify the Trust assets and ensure that they are distributed correctly to the right Beneficiaries. Any exercise of the Trustees’ power to make distributions must accord with their fiduciary duties both at common law and under Isle of Man statute. Trustees have a duty to act in the best interests of the Trust and to exercise reasonable skill and care. Proper consideration must be given to all relevant matters and excluding any irrelevant matters.
Full minutes should be prepared of the Trustees’ meeting to discuss and agree the relevant action points and exercise of their power pursuant to the Trust Deed.
To protect their position, Trustees can place 2 advertisements, in newspapers in the Isle of Man and any other relevant jurisdiction, for claims of which they have no notice, in accordance with section 26 Trustee Act 1961. A minimum notice period of at least two months must be given.
Before distributing the remaining Trust assets to the identified beneficiaries, final Trust accounts should be prepared.
The Trustees should require that the accounts are approved by the Beneficiaries before final distributions of assets.
Before transferring legal title of the Trust assets the trustees should also obtain a full discharge, (and where appropriate an indemnity), and request a release from the Beneficiaries. The Beneficiaries cannot be required to provide a formal release, but at the very least should provide a signed receipt for assets distributed to them.
The distribution of Trust assets should be formally documented and the Trustees must ensure the validity of the relevant termination documents in each case.
The guidance in this note is for information purposes only and is not intended to be exhaustive. It is not intended to constitute legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. DQ shall accept no responsibility for any errors, omissions or misleading statements or for any loss which may arise from reliance on the information in this note.
By Annemarie Hughes
Director / Head of Trusts, Pensions & Private Client