I’ve been appointed as a trustee. What do I need to do?

Posted on By Joanna Pegum
man looks thoughtful

Have you been asked to take on a trustee (or executor) role for someone’s will? If so, did you understand what the role entailed, or take advice before accepting?

It’s all too common for people to agree to say yes without finding out what’s involved. Taking on an executor /trusteeship is not to be done lightly and you should take proper advice, especially if you are unfamiliar with estate and trust management.

First steps

If you’re a new trustee, you should establish the nature and extent of the trust asset(s), as this will also determine the nature of your responsibilities. For example, if it is a share in a property, is there insurance in place? Who is responsible for this and for other outgoings? Do you and the other trustees have access to the property so you can inspect it?

If the asset creates an income, have you registered the trust with HMRC and submitted regular income tax returns? Trusts do not have an allowance similar to personal income tax; but instead there is a trustee rate of income tax associated with a discretionary trust or other ‘relevant property regime’ trust. It’s worth speaking to a qualified practitioner to fully understand this and other issues.

If you fail to register with HMRC or pay income tax, you may incur penalties, so it’s better to do this at the outset. I know of one case where a man who was co-executor of his late wife’s estate, which included a nil-rate band trust and an IOU to the trust, had not registered the trust even after ten years! A very late filing to HMRC was required, and the family had to seek advice for what had become a messy and tax-inefficient situation.

Seek advice

If you’re appointed trustee, seek advice, and soon, as there are real responsibilities to fulfil both at the outset and going forward.

What about choosing trustees/executors for my own will?

If you’re making your own will and need to choose trustees/executors, you’ll need to consider whether they will agree, whether they can work well with any other named person(s), and if they are suitable for the position.

Pippa Bavington TEP is an Associate Solicitor Private Client with Giles Wilson Solicitors in Leigh on Sea, Essex 

I am worried that a trustee has mismanaged my trust fund. What can I do?

Posted on By Joanna Pegum
concerned woman

Trustees are appointed to safeguard funds in a trust, and are duty-bound to act in the best interests of the beneficiaries. While most trustees will carry out their duties conscientiously; occasionally, there is mismanagement.

There are a number of ways in which a trustee can mismanage a trust fund. This can include:

  • Using trust funds to make investments that are not permitted by the trustee’s powers of investment, or which are outside the investment or risk profile for the trust, such as hazardous or speculative investments
  • Failing to exercise reasonable skill and care when making investments
  • Distributing trust assets to non-beneficiaries, or to a beneficiary who is not entitled to them under the terms of the trust document
  • Using trust funds for the trustee’s own personal advantage – even if he or she only ‘borrows’ the money
  • Reaping financial benefits from trust funds without permission
  • Making decisions based upon personal interests, instead of those of the beneficiaries.
  • Failing to take reasonable steps to protect the trust fund.

How can I find out if a trust fund is being mismanaged?

Trustees have a duty to account to beneficiaries for their administration of the trust.

Beneficiaries are entitled to demand financial information showing how the trust fund has been managed. If the trustee refuses to provide this, the beneficiary can apply to the court for an order compelling the trustee to produce it.

Once the beneficiary has the information, they should then be able to assess whether there has been any mismanagement.

If the affairs of the trust are complicated and/or it is unclear whether full information has been provided, it may be advisable to use a forensic accountant to discover whether there has been mismanagement, and whether complete information has been provided.

I’ve established that the trust fund has been mismanaged – what are my options?

There are a number of different types of remedy available, depending on the nature of the mismanagement:

  • If trust funds have been misappropriated, or wrongly distributed to non-beneficiaries, you can bring a court action for their recovery.
  • If the trustee has failed to exercise care and skill, or has made unauthorised investments, you can bring an action against him or her to make good the losses.
  • If the trustee has, without authorisation, profited from their position as trustee, you can bring an action against him or her.

As well as proceeding against the trustee, beneficiaries may also be able to proceed against third parties who dishonestly assisted the trustee in his or her breach of fiduciary duty – for example, anyone else who may have profited from their misconduct.

You can make an application to remove the trustee from office, if you do not have the power to do so under the trust deed, or if the trustee will not step down voluntarily.

Before bringing any such action, however, it’s best to take legal advice. If the legal action is unsuccessful, you may run the risk of having to pay the trustee’s costs. Your advisor may suggest alternatives to court action, such as direct negotiation or mediation, in the first instance.

Oliver Passmore is an Advocate and Managing Associate at Ogier, Jersey

What should I look for when choosing a trustee?

Posted on By Louise Polcaro
choosing a trustee

If you’re thinking about setting up a trust, either to take effect in your lifetime or after your death, you need to take care when choosing a trustee.

In setting up a trust, you are giving up ownership of the assets, and signing them over to the trustee. The trustee will then take responsibility for managing the money or assets that you have set aside in the trust for the benefit of someone else (the beneficiaries). The trustee must use the money or assets in the trust only for the beneficiary’s benefit and everything the trustee does must be done in the beneficiary’s best interests.

Clearly, with such an important responsibility, it is essential to choose the right person to act as trustee.

Who can be a trustee?

As a general rule, anyone over the age of 18 can be a trustee. But you will want to be very careful about who you give the power and responsibility of trusteeship to.

Many people appoint a trusted family member or friend for trusts that take effect after their death. For trusts that take effect in your lifetime, you can appoint yourself and your spouse/civil partner/partner as trustee(s) if you wish, so that you retain some control over the assets and the decision-making power, though you must exercise this for the benefit of the beneficiaries.

How many trustees should there be?

Two or three are preferred. Four is the maximum (unless it is a charity), and only one trust corporation is needed.

Must I appoint a professional trustee?

You do not need to appoint a professional trustee, but this can be helpful if the others are unfamiliar with the obligations of the role. Alternatively, you can appoint family or friends and they can take advice from a professional trustee as and when necessary.

What do I need to think about when choosing a professional trustee?

If you decide to use a professional trustee, make sure you do some research before you sign up with them.

  • How long has the company been trading?
  • Are they regulated by any body/bodies?
  • Have they signed up to any professional codes?
  • Do they have a good reputation?
  • Are their charges reasonable?
  • Do they have professional indemnity cover, or other protection in place?
  • Who are the directors? Check their credentials and background

You should take your time and shop around to ensure you are completely comfortable with the company before you make a decision.

Final thoughts

Ultimately the clue is in the name: ‘trust’. You must make sure you trust the person or people you appoint as trustee(s). This is an important decision and must not be taken lightly.

Related articles

What is a discretionary trust, and when would you use one?

Posted on By Joanna Pegum
woman looking thoughtful

A discretionary trust means trustees have the discretion to decide who benefits from the trust, from a list of potential beneficiaries.

They can also decide when payments are to be made, how much, and how often.

Discretionary trusts are very flexible and can have many uses. For example you might not know how much your beneficiaries might need in the future, so you can leave that responsibility to the trustees.

Personal injury trusts

Another good use for a discretionary trust is a personal injury trust, which can be set up by, or on behalf of, someone who has received compensation from a personal injury claim so that they don’t lose eligibility for their benefits.

Protecting other members of your family

Before 2007, when the law changed, it was common for spouses to make wills leaving the inheritance tax allowance (currently £325,000) to a nil-rate band discretionary trust, so the surviving spouse or civil partner could make use of their allowance after the first spouse died.

While this is no longer necessary, thanks to the transferable inheritance tax allowance between spouses or civil partners, it is useful to include such a trust in your will to provide for other members of the family. If there are assets which are likely to increase in value at a faster rate than the inheritance tax allowance, these could be included in the trust to mitigate inheritance tax on the estate of the surviving spouse/civil partner.

The main disadvantage of a discretionary trust is that any income which is produced from trust assets is taxed at a higher rate of income tax (currently 45%); however, beneficiaries who are basic rate tax payers can claim a tax rebate.

Taxes on trusts

If the value of the trust exceeds the inheritance tax allowance, there may be inheritance tax to pay when any assets are transferred to the beneficiaries (exit charge) and on each ten-year anniversary of the start of the trust (principal charge). The calculations for the exit charge and principal charge are complex, but the rate of tax is lower than the rate of inheritance tax and the maximum rate of tax payable is 6%. See Can I really use a trust to avoid inheritance tax? for more information.

Discretionary trusts are often set up by a will, but they can also be set up during someone’s lifetime. If the gift into trust is under £325,000 and no other gifts have been made, there will be no immediate lifetime inheritance tax charge.

It is worth noting that the inheritance tax residence nil-rate band, which came in to effect in April 2017, cannot be claimed if the deceased’s residence passes into a discretionary trust. This is because it must pass to direct descendants and cannot pass into trust (see What is the Residence Nil-Rate Band? for more information). However discretionary trusts are still useful tools to consider as part of estate and trust planning.

Tina Wong TEP is a Solicitor at Pothecary Witham Weld in London

What should a trustee meeting look like?

Posted on By Louise Polcaro
Trustee meeting

When you become a trustee, you become one of the decision-makers for a trust, and one of those responsible for its beneficiaries and their needs. As most key decisions will be made at a trustee meeting, it makes sense to document the decisions you and your fellow trustees make throughout the lifetime of the trust. This is most easily done by taking minutes at trustees’ meetings. However they can also take the form of resolutions or deeds; or for distribution of funds, tax forms.

Who should attend a trustee meeting?

In addition to trustees, your attendees might include some of the following:

  • Professional advisors, who might deal with taxation or legal matters
  • Investment or financial advisors
  • Beneficiaries or their representatives

Do all trustees need to attend in person?

Ideally, yes, because the trustees usually need to make their decisions unanimously.

If it’s not possible to get people together in the same room, you can use a conference call, Skype or similar. The main thing is that you can confer with each other, and stick to your appointed duties.

If a trustee cannot attend, even by phone, you can send them details of the discussions so they can consider what was said, and approve, reject or amend as they see fit.

How often should we meet?

It’s useful to meet once a year, but depending on the trust’s requirements, more frequent meetings may be required. If you are a trustee of a ‘dormant’ trust, you will probably need to meet less often.

What should go on the agenda?

You and the other trustees will need to cover a number of key items most times you meet.

You need to review the nature of the trust assets, and ensure that you are complying with any changes in legislation or tax. Most importantly, you must to consider the beneficiaries’ needs, and assess how the trust might assist them, or whether it’s best to retain funds for future use. An agenda might look like this:

  1. Review of the Trust Deed/Letter of Wishes: Familiarise yourself with the original trust instrument. Check what your powers and restrictions are, who the beneficiaries are, and what the trust is intended to do. If there is a letter or statement of wishes, this will provide further guidance.
  2. Review the tax treatment of the trust: What are the rates of income tax, capital gains tax and inheritance tax, and what are the reporting measures? Are there any changes that you should be aware of?
  3. Apologies: Who is attending and who sends their apologies?
  4. Matters arising: Were there any matters arising at the last meeting which have either been addressed or continue to remain outstanding? (This is to ensure nothing is missed between meetings)
  5. Beneficiaries and their needs: Who are the beneficiaries of the trust, and what are their entitlements? Is it appropriate to distribute funds to them? Are any potential beneficiaries nearing their age of entitlement? Are there any vulnerable beneficiaries?
  6. Asset performance: 
    • Are the assets within the trust suitable, given the trust’s objectives, and is the level of risk appropriate?
    • Where there are investments, have they fared well enough compared to the benchmark the trustees have set?
    • If the investments are managed on a discretionary basis, has the investment manager been given an Investment Policy Statement (an obligation of the Trustee Act 2000)?
    • Where there is property, is it insured, is it properly maintained, and are rental agreements fit for purpose?
    • Where there are loans, are the interest rates still appropriate?
    • Have the borrowers acknowledged the loan and made the required repayments, or should the loan be called back in?
  7. Accounts: You’ll need to review and approve the accounts for the tax year. Assess the amount of capital and income, and ensure all interests are being managed accordingly.
  8. Tax/compliance: Sign off the trust tax return, record key dates for payments and deadlines, provide tax certificates to the beneficiaries for income entitlement, and see if you can make use of any tax allowances or reliefs. Assess the position for income tax, capital gains tax and inheritance tax, and see if any measures can be taken to reduce future tax burdens.
    Complete self-declarations for the Common Reporting Standard (CRS), if necessary, the Foreign Account Trust Compliance Act (FATCA), report to the US Internal Revenue Service (IRS), and update HMRC’s Trust Register and if necessary, register for a Legal Entity Identifier (LEI) number to continue investment trading. If all this is sounds very technical, some brokers or trust administrators will do this for you.
  9. Key dates/planning: Discuss any event dates on the horizon that will affect the trust, and plan accordingly.
  10. Approval of agents: Decide whether you are happy to continue with your current agents, professional advisors and investment advisors.
  11. Any other business: The trustees, advisors and beneficiaries have the opportunity to raise anything relevant that has not been already covered

Do we have to take minutes?

Although it is not a formal requirement, taking minutes is administrative good practice. It could also be very useful if the trustees are ever subject to legal proceedings, for example, from a disgruntled beneficiary. The minutes could be used to provide evidence that the trustees were performing their duties and considering all beneficiaries when reviewing the trust arrangements.

What should the minutes of the meeting look like?

The minutes needn’t be a burden. They could follow the running order of your agenda, and be updated each year to reflect any change of circumstances.

Cheryl Farnham TEP is a Director of Arcadia Trust Group in Somerset, UK

10 tips to help you get started as a trustee

Posted on By admin

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 register the trust with His Majesty’s Revenue and Customs ‘HMRC,’ 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 (whose charges would be a direct expense, 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. It can also provide a clear record to HMRC of those funds taxable to Income Tax or capital taxes such as Capital Gains Tax and Inheritance Tax.. 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, which might include 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. Additional considerations may need to be made where vulnerable beneficiaries are to receive funds. You may need to make enquiries about any benefits that they may receive (which can be disrupted if personal savings thresholds are exceeded).

10. Just ask!

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

Related articles

Cheryl Farnham TEP is a Director of Trust Group in Somerset, UK