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Receipts and payments (Checklist - trust fund distributions (That the…
Receipts and payments
There are a number of different types of receipts and payments that may be received or paid by client entities including
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Basic considerations that OSPs should address whenever funds are received or paid from an entity to which they have been appointed
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Whether the entity has authority under its trust deed or articles of association to receive funds or make a payment
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Whether sufficient, up-to-dated customer due diligence is held
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Whether the remitting jurisdiction is subject to financial sanction or otherwise considered as a high risk jurisdiction
OSPs will usually have procedures and checklists that will assist administrators to consider all the relevant matters when undertaking a transaction
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Loans
The following matters may also need to be included within the internal procedures of the OSP and may include
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Which assets will be offered as security, where applicable
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It is common for funds to be transferred between overlying trusts and their underlying companies by way of unsecured, interest free and repayable on demand loans
The decision making accompanying the making of loans should also bear in the mind whether it should be on commercial terms
Distributions
Trust distributions may occur during the period of the trust either by income payments or by capital payments. Alternatively the distribution may be for the whole of the trust fund
With a fixed trust, a trustee is under a duty to distribute the trust assets to the beneficiaries in accordance with the terms of the trust deed while in the case of discretionary trusts the trustee's duty is to consider whether to exercise its discretion
Failure to comply with the duty of distributing funds in accordance with the terms of the trust deed would only be a breach of trust if the beneficiary complained to the court and in the situation where a trustee makes a distribution to a non beneficiary, this could also deem the trustee to be in a possible breach of trust situation
It is the duty of a trustee of a discretionary trust to consider any requests from a discretionary object for a distribution, but the trustee must be seen to exercise their own judgement in deciding whether or not to agree and approve the distribution
Sometimes trustees may be faced with the problem of having the duty to distribute trust assets to a particular beneficiary who cannot be found. The problem of finding a known beneficiary who may or may not be dead can be overcome by a Benjamin Order. This authorised the trustee to distribute the trust assets on the basis that the missing beneficiary is dead. A result of such an order is that it avoids undue delay in the further administration of the trust or the estate in a will. The order could allow the trustee to ignore the potentially dead beneficiary and distribute the assets, and the trustee would be protected by the court order if the beneficiary or their descendants ever appeared to claim.
Regular reviews to ensure that any distribution plans reflect the needs of beneficiaries and is aligned with the terms of the trust deed is essential
In the case of younger beneficiaries, the trustee may make distributions directly to their parents, guardians, schools or universities when appropriate
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