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JGM, Solicitor
Category: Scots Law
Satisfied Customers: 12179
Experience:  30 years as a practising solicitor.
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Further to the same question: if the directors declare a dividend

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Further to the same question: if the directors declare a dividend , can the trustees waive the dividends for the shares in trust so that the money lies in the Company's retained profits with the intention to help the Company increase its profitability rather than increasing bank borrowings for the ultimate benefit of these beneficiaries when they receive their shares.
The trustees judge that the return in the Company would be greater than if the amount of the dividends attributal to the shares in trust were invested elsewhere where the return may be less

Or is it absolutely essential that the dividends for the shares presently in trust are paid out to the beneficiaries of these shares , even although they have not reached 40 years of age?
Thank you for your question.

The dividends don't have to be paid out to the beneficiaries but they would normally be paid into the trust. However, the trustees have a wide discretion and, subject to anything that the trust deed may say, typically they have the widest discretion of investment. It would be open to them to invest the dividends back into the company of they thought that was where the best return lay.

They would have to cover themselves by getting proper advice from accountants employed by the trust to report on, amongst other things, the long term prospects of the company, solvency etc as obviously there are risks.

If some of the trustees are also directors of the company there would also be potentially conflicts of interest that would have to be considered. A director has a duty to the company and a trustee has a duty to the trust and to the beneficiaries, although there are no beneficiaries in a discretionary trust, only potential beneficiaries. The trustees still in my view have a duty of care to the potential beneficiaries.

I hope this helps. Please leave a positive response so that I am credited for my time.
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