Corpus, distributions and taxation

This article explores whether transfers of value render settled assets corpus of a trust, whether the market value of those settled assets is the operative value of the resulting corpus, and whether those settled assets when distributed to a beneficiary are distributed tax-free because they are treated as corpus in the hands of the beneficiary. These issues are considered from the perspective of trustees, beneficiaries and settlors. They are also discussed where a trust is resettled and where a trustee acts in a personal capacity and as the trustee of multiple trusts. Where the assets are transferred at below market value, market value is central to establishing both the identity of a settlor and the corpus question. The date of settlement is also a central concept. Where a settlement or a resettlement involves debt, for example, separate settlements may be deemed to have occurred where interest is paid at below market rate. It is therefore possible that the relevant date for the determination of market value of the corpus upon which a settlement has been made is the date at which the last of the multiple settlements is made.