Acting as a Trustee or thinking of appointing one?

Being asked to act as a Trustee by a friend or member of the family can be flattering, as it shows they trust you to handle their financial affairs. But remember that by accepting you will have to take on a lot of responsibility. Generally the procedures of being a Trustee are not complicated – provided you are good at paperwork – but can be time-consuming. If you are the sort of person who hates forms or dislikes dealing with officials, then maybe the job is not for you and you should gracefully decline.

Trustees are appointed either by way of a Lifetime Settlement or by a Will. A Trustee is not precluded from being a beneficiary of the Trust, but it is often easier to be impartial if you have no vested interests.

The Trustees have an overriding duty of care in everything they do, including:

  • Managing and administering the assets of the Trust.
  • Protecting the assets of the Trust, e.g. ensuring a property is adequately insured.
  • Ensuring the interests of all the beneficiaries are adequately provided for and protected.
  • Dealing with Income Tax, Capital Gains Tax and any Inheritance Tax formalities as they arise.
  • Distributing income and/or capital to the relevant beneficiaries in accordance with the terms of the Trust.

For Trusts involving money to invest, the duties and responsibilities of a Trustee are encapsulated in the Trustee Act 2000, the key elements of which can be summarised as follows:

  • Obtain proper advice (from a regulated Adviser).
  • Ensure the suitability of the investments.
  • Ensure adequate diversification of the portfolio.
  • Keep the investments under regular review.

If a Trustee fails to observe these principles they leave themselves open to future litigation if beneficiaries are dissatisfied with the Trustee’s stewardship of the Trust assets. Case Law is littered with examples of Children and Grandchildren suing their own family members for failing in their duties as a Trustee. For a more detailed look at this element of Trusteeship, see my blog on Trust Investments.

In many ways a Trustee can be considered to be between a “rock and a hard place” as they are equally at risk of future litigation if they are too cautious in their approach to investment as they are if their approach is too reckless.

They can also be at risk if they are perceived to be favouring the interest of one beneficiary over another. For example, if a Trust leaves the income generated by the assets of the Trust to one beneficiary, say the individual’s Widow, with the capital of those assets to the Children upon the second death, the Widow cannot be favoured over the Children or vice versa. A compromise generally has to be struck between current income and capital appreciation.

Issues of taxation also have a bearing upon the management and administration of assets as many Trusts are subject to Income Tax at 45% and Capital Gains Tax at 28%, with reduced Allowances, which can dramatically impact investment returns. Often some or all of the Trust assets can be “wrapped” in non-income producing arrangement to minimise the tax and tax administration burden.

If you are the one wanting to select Trustees, if you don’t want to burden friends or family with these duties, or you think there may be family disputes to deal with at a later date, you should consider appointing a professional Trustee. This will increase the Trust administration expenses, but may well be money well-spent in the long run.

What next?

I have been advising on Trust since 1971, so, if you need help selecting the right Trustees, or, if you are a Trustee and need help with managing the Trust’s finances, then please speak to me today or complete the form below.

    - Wills, Trusts and Lasting Powers of Attorney

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    About Clive Barwell

    Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.