Deed of Distribution

7 August, 2014 | Peter Smith

What is a deed of distribution?
An irrevocable Deed of Distribution is a deed binding on the trustees requiring them to distribute all or part of the trust assets to named beneficiaries.  The date of distribution usually coincides with the death of the settlor. The date must be within 80 years of the trust’s establishment.

If I don’t have one what happens to my trust assets?

For a discretionary family trust the trust will be administered by the trustees who have complete discretion as to how capital and income is distributed among beneficiaries (within the powers set out in the Trust Deed). Or if you have a Memorandum of Wishes, then the trustees will be guided by that, although it is not legally binding.

The main situation where a settlor enters into a Deed of Distribution

Terminal illness – A Deed of Distribution gives the settlor of a trust certainty as to distribution and a peace of mind of to whom and how, trust assets are to be distributed on the death of the settlor.

Who can write a deed of distribution?

A Deed of Distribution can only be written by the settlor and the trustees and must be done with the help of your solicitor.

What sorts of things can I include?

1. A Deed of Distribution can set out what, where, when and to whom distributions can be made.  It states a date when this will happen.
2. A Deed of Distribution can be for all of the trust assets, or for only a portion of the trust assets leaving the remainder to be distributed by the trustees who have complete discretion.
3. A list of assets owned by the trust at the time the Deed of Distribution is executed is required in identifying what is to be distributed.

Are they legally binding?

Yes — provided that it is an irrevocable Deed of Distribution and a Deed of Distribution is permitted by the trust deed. A Deed of Distribution is binding on the trustees and even if the circumstances of the beneficiaries named in the trust deed may have subsequently changed.So you will need to be quite certain as to the distribution before entering into a Deed of Distribution.

Are there any requirements?

A Settlor and the Trustees can only create a Deed of Distribution if the Trust Deed specifically allows for a Deed of Distribution.When preparing a Deed of Distribution the Trustees need to record that they have considered the interests of the Trust’s beneficiaries.  And that in having done so, the Trustees have decided to exercise their power under the Trust Deed to distribute the Trust Assets.

Who can see my deed of distribution?

Because a Deed of Distribution is normally only used in circumstances where the Settlor has a terminal illness, the existence of the Deed of Distribution and its contents are normally only disclosed to the Trust’s beneficiaries on the death of the Settlor.

To discuss whether a Deed of Distribution is right for your family trust, contact experienced family trust lawyer, Peter Smith by phone on 09 837 6882 or email peter.smith@smithpartners.co.nz

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