Trusts can be very useful vehicles that can help manage assets. Unfortunately, many people find trusts confusing and daunting, and acting as a trustee carries significant levels of responsibility.
In simple terms, a trust is an arrangement where assets are held and managed by an individual or individuals (known as trustees) on behalf of another individual or individuals (known as beneficiaries).
Trusts can be created for many different reasons and to suit different purposes. Many trusts are created in a will, whereby the will instructs the trustees to look after funds for another person or group of people. Some trusts are created by an individual when they are alive, with a view to passing on assets to help reduce tax. Other trusts are established when an individual is incapacitated or too young to look after the funds themselves.
Whatever the trust arrangement that has been established, each trust needs to have at least one trustee (although it is desirable to have at least two). The trustees have legal responsibility for the funds held in trust, and have a duty to manage the assets held in trust and ensure that the trust meets its purpose and objectives.
Trustees owe a fiduciary duty to the beneficiaries, to act honestly, in good faith and with loyalty. Every decision made by a trustee needs to be made in the best interests of the beneficiaries. Trustees also need to act unanimously when reaching decisions in relation to the trust assets.
A trustee may be appointed in a will, and it is normally the case that the executors of the will automatically become trustees of any trusts created by the will. When a trust is created during an individual’s lifetime, the person creating the trust (known as the “settlor”) will need to choose the trustees who will carry out the role. Many opt to appoint family members or friends to act as trustees. This may prove beneficial as the family member or friend may well have good knowledge of the family’s circumstances; however, the individual taking up the role may not have any experience of the legal obligations placed on them, or the time that will be taken in fulfilling their duties.
An alternative to appointing a family member or friend is to appoint a professional trustee, such as a Solicitor. By appointing a professional trustee, this will ensure that an impartial, experienced individual is handling the decisions on behalf of the settlor.
For those who are appointed as a trustee in a will, or an individual appointed as trustee of a lifetime settlement, it is important to fully understand the purpose of the trust and seek guidance on the specific requirements, in particular in relation to assets held by the trust. These will be contained in the will (in the case of a trust created on death) or in the trust deed for a lifetime trust. This will set out the specific instructions that the trustees must follow and can cover a number of aspects, from how monies are to be held, the investment powers that the trustees have, and when funds should be paid to beneficiaries. It can also provide directions as to how income generated by assets held in the trust is to be dealt with. When a trust contains residential property, trustees may have further duties to comply with, such as ensuring that the property is adequately insured, and maintaining and repairing the property.
Most trusts provide the trustees with wide investment powers, which leaves the trustees with a decision to reach when deciding how trust funds are invested. Under the Trustee Act, trustees have a duty to obtain proper advice before making a decision, unless the trustees reach the conclusion that there are exceptional circumstances where advice is not needed. This could, for example, be where the amount of money left in trust is considered to be too small to warrant advice; however, this judgement call needs to be made by the trustees’ themselves.
At MGFP, we have considerable experience in providing independent investment planning and advice to Trustees, through our Trustee Service.
We appreciate that the precise requirements of each trust will be different, and we therefore initially take the time to fully review the trust documentation to understand the terms of the trust and highlight the important considerations. We can manage Trust investments on an advisory or discretionary managed basis, with all investment decisions made by our experienced in-house Investment Committee. The majority of trustees choose our discretionary managed service, as this ensures that the trust investment portfolio is reviewed and rebalanced at least four times a year. This also helps reduce the amount of administration involved when making changes to the trust portfolio.
Given that the Trustee Act requires trustees to review a trust regularly, we carry out an in-depth review at pre-determined intervals. This comprehensive review covers the investment performance, matters relating to the trust and ensures that the trust portfolio can readily adapt to any change in circumstance. These regular reviews, and follow-up reports, can also assist the trustees in their audit trail to demonstrate their compliance with the requirements of the Trustee Act.
If you have been appointed as a trustee, or wish to review an existing trust, speak to one of our experienced advisers.
