Many in the trustscape use— or at least, have heard of— an Investment Policy Statement (“IPS”). The IPS articulates the approach of the trust for investment of its financial assets, and can cover the nature of the investments, risk tolerance, the targeted return, the managers and advisors on the team, and other metrics and details.
The process of the creation of the IPS can align various stakeholders in the trust. Further, the stakeholders can assess whether the actual investments meet the criteria of the IPS. In annual meetings, the IPS can be revisited and revised, as the situation may suggest.
Curiously, few in the trustscape seem to use— or even have heard of – the Distribution Policy Statement (“DPS”). Like its investment counterpart, the DPS articulates the trust’s approach for a significant aspect of asset management. However, instead of focusing on the investments as does the IPS, the DPS articulates the handling of the distribution of trust assets.
In a real sense the DPS may be foundational to the IPS. After all, how can a trust determine how it will invest, unless it knows when and how much it is paying out?
A DPS may start with the language of the trust document and any directives. To the extent the trustees may have discretion, they can state their approach for decision-making as well as what purposes or categories of distributions they may favor or not. In addition, the trustees can state how they intend to balance present and future distributions.
Of course, all these parts are subject to appropriate beneficiary buy-in and even collaboration.
As with its investment counterpart, the process of the creation of the DPS can align various stakeholders, especially the beneficiaries. Further, the various stakeholders can assess whether the actual distributions met its criteria. Finally, in annual meetings, the DPS can be revisited and revised, as the situation may suggest.
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