From time to time we come across situations where a trust has been established with the settlors of the trust also being appointed as the trustees of the trust without an independent trustee.
Independent trustees are important in any trust structure for a number of reasons, however, one issue that has become apparent in reviewing a number of trusts that are presented to us is that some trust deeds, particularly older trust deeds contain provisions prohibiting “self dealing” which effectively prevents a trustee from participating in a decision to make a distribution to a beneficiary who is also a trustee.
So in a situation where settlors and trustees are one and the same, such as where a husband and wife are the only trustees of their trust, if a provision prohibiting self dealing is in the trust deed any distribution of beneficiary income to the husband and wife will be in breach of the terms of the trust deed.
This can also have taxation implications in that any distribution in those circumstances would effectively be treated as trustee income and taxed at the trustee income tax rate of 33% thereby losing the benefit of distributing beneficiary income to a trustee/beneficiary on a lower marginal tax rate.
It is very important that any self dealing clauses are modified if there is no independent trustee or an independent trustee is appointed and decisions of the trustees are required to be unanimous.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Paul Farry
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.