What are the consequences of a failure to deposit the settlement sum on the establishment of a discretionary trust?
This area of the law is potentially complex, however ultimately the conservative position is that the settlement sum should always be deposited into the trust’s bank account, and ideally, it should in fact be the first deposit.
The approach of placing the settlement cheque (or a cash equivalent of it) on the file for the trust can be problematic for a range of reasons, including:
- Where the settlement sum is by way of cheque, the cheque will normally go stale after 13 months; and
- Even where cash is stored with the trust, it is difficult to provide documentary evidence of the settlement sum forming part of the trust if the cash is lost.
Ensuring that the settlement sum is deposited into the bank account of the trust at least avoids each of these two issues.