What is a Trust?
Before diving into the deeds, let’s quickly recap what a trust is. A trust is a legal arrangement where, in general, one-person (the settlor) transfers assets to another person or group of people (the trustees) to hold for the benefit of others (the beneficiaries). Trusts are often used to manage and protect assets, ensuring they are used according to the settlor’s wishes.
Deed of Appointment
Purpose
A Deed of Appointment is, generally, a legal document that trustees use to allocate or distribute trust assets to beneficiaries. This document allows the trustees to decide, subject to having a power of appointment contained within the trust, who gets what from the trust and can change the beneficial interests of the trust assets to be allocated to beneficiaries.
When is it used?
A Deed of Appointment is used when the trustees have the power to decide how the trust assets are to be distributed. A power of appointment only exists if this has been drafted into the trust instrument albeit trusts are often, but not always, drafted very widely to give the trustees such power. They are usually found in discretionary trusts.
The deed allows the trustees to respond to changing circumstances or needs of the beneficiaries. For instance, if the trust deed allows trustees to decide which of the beneficiaries will receive trust income, the trustees can use a Deed of Appointment to allocate that income to one beneficiary over another.
Example:
Imagine a trust set up to benefit three siblings. The trustees might decide that one sibling needs more support at a particular time. They could use a Deed of Appointment to allocate a larger share of the trust’s income or assets to that sibling.
Deed of Advancement
Purpose
A Deed of Advancement is a legal document that can be used to give a beneficiary their share of the trust assets earlier than initially planned. This is particularly useful in situations where the beneficiary needs funds for specific purposes like education, housing, or starting a business.
When is it used?
A Deed of Advancement is often used in trusts set up for minors or young adults. The trustees can decide to provide funds to the beneficiary before the date specified in the trust deed, provided the trust terms allow it. Unlike a power of appointment, the power of advancement is statutory, although amendments can be made by express provisions within the trust document.
Example:
Consider a trust set up for a grandchild, with instructions that they receive their inheritance at age 25. If the grandchild needs money for university at age 20, the trustees can use, subject to the terms of the trust, a Deed of Advancement to provide part of the funds early.
Understanding the difference between a Deed of Appointment and a Deed of Advancement is crucial for anyone involved in a trust, whether you are a trustee, beneficiary, or settlor. These deeds are tools that help manage the trust assets effectively, can ensure that the trust operates in the best interests of the beneficiaries and allow the trustees to meet their fiduciary duties.
DMH Stallard has the expertise and knowledge to provide comprehensive support and advice regarding the administration of trusts so as to include, but not limited to, the use of Deeds of Appointment and Deeds of Advancement.
If you would like any further information or assistance, please contact us.
