Help! I’ve been appointed a trustee. What are my responsibilities?

A quick guide to fulfilling your trustee duties

If you've been appointed as the trustee of a trust, what are your responsibilities and how do you fulfil them efficiently? This article will consider the following:

  • Duties to be performed on appointment
  • Investment duties
  • Protecting the interests of beneficiaries
  • Keeping accounts and records
  • Distributing property to beneficiaries.

 

Duties to be performed on appointment

  • Obtain a copy of the trust deed and read it.

The trust deed will set out the powers and duties the settlor has given to the trustees. These powers will be ‘dispositive’ (how, and in what circumstances, the trustees are to distribute trust income and/or capital) and ‘administrative’ (how the trust is to be ‘run’).

 

  • Check and understand the interests of beneficiaries.

The trustees must act solely in the interest of beneficiaries. The beneficiary has a right to have the trust administered, the trust fund invested and income distributed in accordance with the terms of the trust.  A beneficiary who is of “full age” (generally 18 in England, Wales and Northern Ireland and 16 in Scotland) should be told of his or her interest in the trust.

 

  • Ensure that the trustee has been validly appointed and that the trustees are legal owners of all the trust assets.

The trust deed will set out a mechanism for the appointment of trustees. This mechanism must be followed – if it stipulates that the appointment must be by way of deed then a duly executed deed is essential.

The investments comprising the trust fund should be in the name of the trustees.

 

  • Manage where appropriate

Certain parts of the trust fund might require management.  For example, in the case of a property which is let out then the trustees need to ensure that rent continues to be received,  the property is adequately maintained and so on.

 

  • Ensure that the trust fund is invested.

It is a fundamental duty of trustees to invest the trust fund so that the beneficiaries’ interests (whether in terms of income or capital appreciation) are enhanced.

The duty of the trustees in relation to investment is to use their powers in the best interests of current and future beneficiaries. 

Trustees should also consider whether they are under any duty to sell any part of the trust property.

 

Investment duties

Trustees can access a wide range of potential investments. Which particular product, or combination of products, is used depends on the specific requirements of each trust. A trustee must from time to time review the investments and consider whether having regard to the standard investment criteria, investments need to be varied.

 

The standard investment criteria are:

  • the suitability to the trust of the investments (both in relation to the suitability of the kind of investment, and the suitability of the particular investment); and
  • the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

 

What are the trustees’ duties in relation to investment?

“Trustees must invest the trust fund and not simply sit on cash.  Assets must be acquired (or retained) to produce a financial return for the trust.” [Stone v Stone (1869) 5 Ch App 74]

 

Trustees have a duty of care.

“The duty of the trustee is not to take such care only as a prudent man would take if he had only himself to consider, the duty is rather to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.” [re Whiteley) (1886) 33 ChD 347]

And on further appeal to the House of Lords:

“Business men of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended by hazard.”  [1887 12 App Cases 727]

The duty of the trustees in relation to investment is to use their powers in the best interests of current and future beneficiaries.

“In the case of a power of investment, as in the present case, the power must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the

Investments in question; and the prospects of yield of income and capital appreciation both have to be considered in judging the return from the investment.” [(Cowan v Scargill) [1984 3 WLR 501]

Trustees should obtain the best rate of return regardless of their own, or the beneficiaries’, political, social or moral views.

Trustees have a duty to seek ‘proper’ advice unless they conclude that in all circumstances it is unnecessary to do so.

 

Protecting the interests of beneficiaries

Trustees must act impartially between the beneficiaries and ensure that one beneficiary does not benefit at the expense of another. Consider for example an interest in possession trust where one beneficiary is entitled to income with others entitled to capital on the death of that person. Those ‘competing’ beneficiaries should be treated fairly unless perhaps the settlor had made it clear that one class of beneficiary was to be preferred over another.

A trustee must not place themselves in a position in which their duties as a trustee conflicts with their private interests.

The trustees can only act within the terms of the trust deed. If they act outside those powers they are said to be in breach of trust. A breach of trust will cause some detriment to the beneficiaries. As trustees can only act in the interests of their beneficiaries a newly appointed trustee is obliged to check that there have been no previous breaches of trust. If there have been such breaches the situation must be remedied. The beneficiaries may absolve the trustees from responsibility for the consequences of the breach. Otherwise the trustees have to make good any loss to the trust fund from their own resources.

A trustee has a general duty not make any profit from the fact that they act as trustee. Nevertheless, professional trustees may charge for their services in a number of circumstances, including:

  • Where there is an express charging clause on the trust deed
  • In certain circumstances with the written agreement of the other trustees
  • Where appropriate with the prior agreement of all the beneficiaries

 

Keeping accounts and records

HMRC make it clear that a record of trust income and expenses must be kept to complete the trust and estate tax return and pass information to beneficiaries. 

You can find out more information at:

https://www.gov.uk/guidance/trust-record-keeping-for-tax-purposes

 

The HMRC guidance details

  • Records that must be kept
  • Records of income payments to beneficiaries
  • How long to keep records
  • What happens if records are lost or destroyed

Clearly a non-income producing insurance bond will simplify the accounting and record keeping requirements.

 

Distributing property to beneficiaries

In a discretionary trust the trustees will have a power to accumulate income. Accumulation is the process whereby, under the terms of a trust, the trustees are authorised or required to accumulate income, thereby converting it into capital.

In ‘interest in possession’ trusts the beneficiary (or beneficiaries) having the right to income must receive that income – within a reasonable period of the trust’s accounting year end. The beneficiary will need to include this income in their self-assessment tax return so needs to know the quantum of income fairly promptly.

  

Further reading

 

The basic principles to follow when acting as a trustee (ICAEW)

http://www.icaew.com/en/membership/regulations-standards-and-guidance/practice-management/acting-as-a-trustee

Types of trust (HMRC)

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1560

 

 

 

Prudential can offer a host of support to help you with estate planning, including:

 

  • Estate planning hub– easy access to online tools and support material
  • ClientFinder – shows you the concentration of different client types in your area – including those who could be looking for estate planning advice right now!
  • Planning Matters– read Margaret’s case study

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