Trustees – Duties & Responsibilities

Being asked to be a Trustee indicates that you are respected and trusted for your abilities. It is nice to be asked, but before accepting the role you should consider whether you have the necessary skill and are willing to take on the responsibility involved. You should also bear in mind that the Trusteeship may last for many years.

The role of a Trustee is to hold property for the benefit of the beneficiaries of the Trust and to administer the Trust in accordance with both the general law and the specific provisions of the Trust document.

If you are asked to become a Trustee it is important that you understand the type of Trust involved and its main purpose. Trusts are established for many reasons so you should:

  • Read the Trust document carefully (this may be a Will or a lifetime settlement)
  • Find out why the Trust has been set up, by talking to the person creating it (the Settlor) or if the Settlor has died, referring to any letters of wishes they may have left, relating to the Trust
  • Seek professional advice, if you are unsure of the powers conferred and the duties required of you

The law places certain duties and responsibilities on Trustees, which may be altered or added to by the express terms of the Trust document. They are:

  • To act in good faith and with honesty and integrity
  • To exercise reasonable skill and care in administering the Trust (the standard of skill and care expected of a professional being higher than that expected of a lay trustee)
  • To comply with the terms of the Trust document
  • To take control of the trust property and to safeguard that property
  • To be impartial as between beneficiaries (see below)
  • To act exclusively in the best interests of the Trust and avoid any conflict of interest between your personal interests and those of the beneficiaries
  • You must not profit from the Trust; this means that you cannot buy property from the Trust or receive payment for carrying out your duties as Trustee (except where authorised to do so by the Trust document); professional Trustees can charge for their time but lay Trustees can normally claim only for out of pocket expenses
  • To invest the Trust property (see below)
  • To act unanimously in all decisions relating to the Trust
  • To act personally (although certain limited delegation is permitted)
  • To keep proper records and accounts and to submit the necessary tax returns on behalf of the Trust
  • To consult beneficiaries where possible and provide information relating to the Trust when requested by beneficiaries

Investment:

Trustees are responsible for investing the Trust property so as to preserve it value. They can invest freely, as if they owned the property themselves, but there are certain factors they must consider when making any investment decision:

  • The suitability of the proposed investment for the Trust
  • Investments should be diversified (if appropriate) to spread risk

Trustees should review the investments regularly and seek professional advice (eg from a financial adviser) to help them choose the most appropriate investments for the Trust.

The tax position of beneficiaries may also be relevant and should be considered.

Types of trust:

The main types of private Trust are:

  • Discretionary trusts
  • Interest in possession trusts (often called ‘life interest’ trusts)

Under a discretionary trust, the beneficiaries have no entitlement to either income or capital. The Trustees have complete discretion as to whether or not to make payments of income or capital and to which beneficiaries.

The Settlor of the Trust may have left a ‘letter of wishes’ outlining the purpose of the Trust and how they envisage the trust fund being dealt with. Such a letter is not legally binding on the Trustees, but they would generally try to take such wishes into account, circumstances permitting.

Trustees of a discretionary trust should consider the needs of the beneficiaries on a regular basis and keep records of their decisions. Although they must be impartial (in that they must consider the circumstances and claims of all possible beneficiaries) they can still decide to give more to one beneficiary than another (or in fact decide not to make any distribution at all).

An interest in possession trust is one where a particular beneficiary has the right to receive the trust income (or has the right to live in a house for life) with the capital passing to other beneficiaries on the death of the income beneficiary.

The Trustees have no discretion as to payment of income – it must go to the specified beneficiary.

However, the Trustees’ duty to act impartially between beneficiaries means that they must invest the Trust funds so as to strike a balance between the income beneficiary’s need for income and the need to preserve the value of the capital for the other beneficiaries (unless the Trust document provides otherwise).

Tax

The tax treatment of both types of Trust can be complex and Trustees should obtain professional advice, to ensure that they comply with their obligations to HMRC.

For more information on this matter or any other private client matter, please contact wills@www.rhw.co.uk or call 01483 302000 and ask to speak to either Edward or Rachel.