10 tips to help you get started as a trustee

So, you’ve been made a trustee – what now? The key word is trust. You have been entrusted to look after assets on behalf of a beneficiary or number of beneficiaries.

With great power, however, comes great responsibility. As trustee you are accountable for keeping those assets safe, possibly investing those assets and making sure that they last for the lifetime of the trust or are used to benefit those listed in the trust deed.

The risks and responsibilities of being a trustee can be a daunting prospect, especially if you’re not familiar with the obligations of this role. It is worth having a conversation with an advisor who can help to point you in the right direction or assist with the day-to-day management of the trust.

Ten tips to get you started

1. Follow the terms of the trust deed

This may be in the form of a will trust (assets left on trust when somebody dies) or in the form of a settlement deed (a trust created during someone’s lifetime). This will advise you as trustee not only of who should benefit, but also of any powers or limitations – for instance, restrictions on investment of the trust funds. Trustees’ legal duties are laid out under the Trustee Act 2000 (England and Wales)/Trustee Act (Northern Ireland) 2001.

2. Check whether there is a letter of wishes

Although not legally binding, a letter of wishes often gives a personal insight into the reasons behind the trust and provides a greater perspective than the deed alone. It might be that one of the beneficiaries is particularly vulnerable and before distributions are made to them, extra care needs to be taken to ensure that it is used as intended.

3. Find out the tax treatment of the trust

Different trusts have different tax reporting obligations and are subject to different tax rates depending on the wording of the settlement and the underlying beneficial interests. It is worth obtaining advice in this regard, as it will be your duty to deal with the tax compliance issues – or the financial penalties for failing to do so. But panic not, if you do not feel that you can competently complete trust tax returns or keep up with the ongoing changes to tax regulations, then as trustee you can delegate this function to a suitable professional, who can charge their services directly to the trust.

4. Keep clear and detailed accounts

You should keep accounts to clearly record the split of assets and that the correct entitlements are paid from the right source. For instance, some beneficiaries are only entitled to the income of a trust, which would mean that they would receive the dividends and interest generated on stocks and shares but would not have any entitlement to the stocks and shares themselves, nor the sale proceeds of these. Preparing accounts can reduce the possibility of disgruntled beneficiaries later down the line. Again a qualified advisor can help with this.

5. Consider whether investments should be actively managed

Delegate your investment management function to reduce risk and provide diversification where appropriate. Where a Discretionary Fund Manager is employed to help with the trust funds, an investment policy statement will need to be drafted to ensure that the investment manager is aware of any restrictions, the risk profile of the family and the need to balance the interests of the beneficiaries.

6. Make sure property is insured

Where there is a property, you will need to make sure that it is insured and that the insurers are noting the trustees’ interests. Arrange for periodic visits to ensure that the property is maintained and not becoming neglected or dilapidated. If there is a life tenant (a beneficiary entitled to stay at the property), see that they are upholding any duties imposed under the trust, such as meeting the costs of repair and insurance.

7. Diarise important dates

For example, the specific dates when beneficiaries become entitled (known as vestings), i.e. upon attaining a certain age; ten-year anniversaries (for the purposes of periodic inheritance tax charges in particular trusts); and agreed distributions from the trust.

8. Hold regular meetings

In order to make informed decisions in the best interest of the beneficiaries, it is advisable to hold regular meetings with your co-trustee(s), advisor, investment manager, independent financial advisors and where appropriate, beneficiaries. You would be advised to minute your decisions in order to document that you have made the necessary considerations.

9. Be proactive

Don’t just sit on the money until the end of the trust’s life; be proactive to find out what the needs of the family are, if any, and whether the trust can assist.

10. Just ask!

Importantly, if you’re unsure or need assistance with the performance of your duties in your new role, just ask!

Cheryl Farnham TEP is a Director of Arcadia Legal & Trust, Yeovil, UK