When can you break a trust?

lewisnedas.co.uk - How to terminate a trust - Lewis Nedas Law

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How to terminate a trust

A trust is a legally enforceable agreement allowing a person to put assets into the trust to be held so that others may benefit. The people involved in a trust are: The 'donors' or 'settlors' – the individuals who set up the trust, and add assets to the trust The 'trustees' – the people who, under the trust deed, are appointed to hold and manage the trust assets for the benefit of the beneficiaries. The trustees must act in accordance with the terms of the trust, which are usually contained in a formal written document The 'beneficiaries' - those who benefit from the trust. They will be named in the trust deed. Situations will arise where the trust is no longer needed or useful, for example, the beneficiaries may have come of age, and so the trust assets can be distributed to them. Here we will discuss the various ways that a trust can be legally brought to an end by either the trustees or the beneficiaries and the consequences that need to be considered.

Appointing out assets

For a trust to exist, there must be:

the intention to create the trust;

the object of the trust (this is the person that the trust is created for);

the assets that the trust contains.

Therefore, once all assets from the trust have been appointed to the relevant beneficiaries, the trust will be terminated. The trustees have to ensure they have the necessary powers to distribute the assets, and often they have a relatively wide range of powers to appoint assets to either specific beneficiaries, or a wide range, or even beneficiaries selected entirely at their discretion. Trustees must be careful of certain types of trusts, such those contained within a Will, where the powers may be limited or even restricted. There may be no power of appointment at all and very specific instructions. It is also possible for the trustees to rely on statutory powers of appointment. However, this can be complicated and it is preferable to use the terms of the trust deed if possible.

Beneficiaries terminating a trust

The views of the trustees are not paramount. If the beneficiaries wish to terminate a trust and are all over 18 years with full capacity, then they can unanimously end the trust and distribute the assets, even if the trustees disagree with this. This means they can effectively ignore the wishes of the settlor who set up the trust, as well as the views of the trustees.

Varying the trust

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It is possible to apply to the court to vary a trust, where it is satisfied that doing this will benefit the beneficiary. This does not necessarily need to be a financial benefit. It can be for educational, social or moral reasons. All beneficiaries will be required to be legally represented (this includes minors and unborn beneficiaries) and so is an expensive option.

Considerations when a trust is terminated

How a trust can be dissolved will depend on the trust in question. Some trusts will be terminated by the occurrence of a particular event (for example, on the death of a beneficiary or when they come of age) whereas others will be terminated by the actions of the trustees or beneficiaries. Whichever way the trust is ended, the trustees should make sure they have a record of its termination, either as a trustee resolution or a formal deed, depending on the terms of the settlement. It may be possible to simply record the decision in writing, or it may have to be actioned by a deed to be valid. HMRC should also be notified of the trust being closed if the trust has been filing UK tax returns. HMRC will then remove the trust from their system. This will ensure that the trustees are not liable for any issues or costs that arise in future. Failure to notify HMRC can result in penalties for either late or non-filing of tax returns. Trustees have a claim over trust assets to make sure that their right to be indemnified is protected. This right includes the right to reimbursement, exoneration, retention and realisation over the assets to ensure the administration or future liabilities of the trust are covered. There are various factors that the trustees should consider in this case. It is advisable that trustees record when a beneficiary will become entitled to trust assets to make sure they have allowed time to plan for the trust ending and the various implications. The trustees should make sure that they are aware which beneficiaries will receive the trust’s assets, whether there are any tax implications from the trust ending and if they should actually be preventing the trust from ending. When a trust is terminated, the trustees must ensure that all trust assets are given to the correct beneficiaries. If they do not do this, they could be guilty of breaching the trust. Before distributing the trust property, the trustees must ensure they have made all reasonable attempts to check if there has been any change to the beneficiaries and what they are entitled to. They should also advertise any relevant persons and if they are not sure if the beneficiary is alive, they need to apply to the court for an order. Finally, if they cannot identify all the beneficiaries, the trustees must pay the trust funds in court (but this is a last resort).

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Before finally winding up a trust, the trustees must pay any outstanding debts and liabilities, as well as making sure they have identified all beneficiaries. They will then determine how much each beneficiary will be given and transfer ownership of these assets to the beneficiary. The final accounts for the trust will then need to be drawn up and will need to receive beneficiary approval before the trustee gets a release or discharge. Our Wills and Probate department pride ourselves on providing exceptionally high standards of customer service and exceptional trusts advice. Our service is personalised, and we can deal with all sizes of estates and wealth. If you are considering setting up a trust to protect your assets, contact our team today to find out how we can help you. If you require any further information about setting up a trust or wish to speak to our solicitors, please telephone us on 020 3811 3600. Alternatively, complete our online enquiry form.

lewisnedas.co.uk - How to terminate a trust - Lewis Nedas Law

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