A trustee, put simply, is appointed by a person or organisation, to look after an asset or assets on behalf of a beneficiary or beneficiaries.
For example, if I gave £100,000 to my friend to look after for another individual, pending the happening of an event, either a life event or attaining a certain age, I am the settlor, my friend is the trustee and the said person who ultimately benefits is the beneficiary. A simple trust deed can be drawn up to record the legal event and govern the life of the trust going forward, hand in hand with general law.
A wiser person than myself once said, when you are looking after your own money you can do whatever you please or like with it. But when you are looking after someone else’s money the bar that English Law – indeed the settlor themselves places on that person, as a trustee – is exponentially raised. Put even simpler, being a trustee can be a very serious and scary prospect.
It is, therefore, not a surprise that it may be prudent to elect a professional trustee, instead, such as a solicitor or chartered and certified accountant. They then also have the ability to charge for their time, and expertise.
So, let’s expand more on which types of things a trustee – either as a lay individual or as a professional – should give their attention to.
The trustee has the power to invest on behalf of the beneficiaries under general law. The trustee should also consider if it is appropriate to seek advice from a financial advisor. Indeed most modern trusts give trustees wide investment powers allowing them – again with the right and proper professional advice – to invest in any type of investment. Of course they have to be mindful of the goals of the trust and what is considered prudent. Life assurance products, unit trusts, stocks and shares and property are amongst some of the options available to them.
The duty to invest is mandatory. This is because trustees owe a duty of care to the beneficiaries and must always act in their best interests.
Protecting the interests of the beneficiaries:
The beneficiaries have the right to have the trust fund administered, the trust fund invested and the income / capital distributed in accordance with the trust deed. For example, where the trustees are managing a fund and one beneficiary is entitled to income and another is entitled to capital, the trustees should consider diversifying the trust fund perhaps by investing in a mixture of authorised investment funds to suit the income needs of one beneficiary and insurance bonds to provide capital growth for the others.
Keeping accounts and records:
The trustee must keep accurate records and accounts. When income is distributed, even if this is at the trustee’s discretion, if this discretion is afforded by the trust deed, records must be kept. The records and accounts will form the basis of the trustee’s annual tax return to be filed at HM Revenue & Customs. Records should also reflect other important decisions that the trustees have made. The said records should be retained for as long as possible so there is evidence later if there is ever a dispute between the trustees and the beneficiaries.
In a trust that is discretionary in nature, the trustees have the choice not to pay out income, indeed they can instead accumulate it. Accumulation is the process whereby under the terms of a trust the trustees can accumulate the income thereby converting it to capital.
In the alternative, if instead it is not a discretionary trust but an interest in possession trust / fixed interest trust, the beneficiaries must receive the income.
Trusts must also now be registered with HMRC and the Trust Registration Service, and certain prescribed information provided to HMRC and kept up to date.
A trustee, put simply, must be trustworthy and honest at all times.
Seek advice from an expert
Having touched on a few roles and responsibilities above, one can see the potential burdensome and onerous task of being a trustee. But also, as touched on above, the trustee has the ability to seek the appropriate advice from the appropriate professional person - a solicitor, a chartered accountant, a financial advisor. Please contact Kew Law if you’d like our expert advice on being a trustee or appointing one.
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