A Trust is an obligation binding a person who holds the legal title (the Trustee) to deal with property for the benefit of another person (the Beneficiary). It is a relationship that is recognised and enforceable in the courts.
There are different types of Trusts, e.g. fixed Trusts, discretionary Trusts and lifetime Trusts which are used in different circumstances, e.g.
- Ownership of the family home
- Pension and life insurance policies
- Lifetime settlements
- Trusts on divorce
- Trusts set up by a Will or on Intestacy
- Trusts for children
- Trusts for disabled people
- Personal injury trusts
Whether or not a Trust is suitable for your circumstances, and the type of Trust required, must be looked into on a case by case basis. Changes in tax rules and personal circumstances must also always be borne in mind.
What must the Trustees do?
The Trustees must look after the Trust fund or Trust asset for the benefit of other persons (the Beneficiaries). In some case there may be just one Trustee and one Beneficiary but the sole Trustee cannot be the sole Beneficiary or else there is in reality no Trust relationship.
How must the Trustees act?
When the Trustees are appointed they agree to act in the best interests of the Beneficiaries and not themselves. This is why it is called a ‘Trust’. They are entrusted to look after the Trust fund for the Beneficiaries.
Trusts can be created in various ways including by Will or by a Trust deed. Some Trusts are imposed by law and are not documented.
Who should not be a Trustee?
- Any person under 18. It may also be too much responsibility for younger people over 18
- Un-discharged bankrupts and those with voluntary arrangements with creditors
- People with current money troubles or with a history of money troubles
- People in prison or who have or may soon be convicted of offences involving dishonesty
- People with a conflict of interest with the Beneficiary or others in the Trust
- People with serious health problems who may be unable to fulfil their duties at any time
- People who live outside the UK or may do so
- People who are in any way concerned they might be unable or unwilling to fulfil their duties as Trustee
- Ideally the Beneficiary and their partners should not be Trustees
- It is usually considered wise to have a combination of family and experienced professionals as Trustees
What are the powers of the Trustees?
The Trustees have certain powers over the handling of the Trust fund. Trustees do not have any power to go beyond the terms of any Trust document unless the general law provides for this.
Most things a person would want to do with their own money can be done by the Trustees for the benefit of the Beneficiaries. For example they can, upon taking appropriate advice, open and operate a bank account, invest money, buy/sell and insure property and purchase help and assistance for the Beneficiaries.
Trustees may sometimes need to take legal advice. This is funded by the Trust fund and not from their own pockets unless the Trustees do something wrong: called committing a ‘breach of trust’. Trustees are liable for losses due to a ‘breach of trust’ out of their own pockets, so taking legal advice is important. Trustees can obtain help from accountants, for example in filling in tax returns, and from other professionals as required. Again, that is at the expense of the Trust fund so far as it is necessary to the smooth running of the Trust.
What are the duties of the Trustees?
A Trustee must:
- disclose any circumstances where they may have a conflict of interest with a Beneficiary
- not act in conflict with the interests of the Beneficiaries
- ensure they know what the terms of the Trust are and that they are carried out
- ensure that they do not act beyond the terms of the Trust and its powers
- ensure that good Trust records and accounts are kept and pay tax due on time
- take independent financial advice. This does not preclude the use of common sense. The Trustees must also ensure that the advice taken is in accordance with the Trustee Act 2000. The ultimate decision over what to invest in is the Trustees’ decision. It cannot be delegated
- act impartially between multiple Beneficiaries and those who are Beneficiaries now and those who will be in the future. This is the general rule but in the case of a personal injury Trust the compensated Beneficiary will be expected to be the main Beneficiary for life
- take reasonable care. Professional Trustees must take more care than others
- act jointly. Trustees should not normally delegate functions to each other. Trustees are jointly liable for mistakes and should therefore act together
- not charge more than out of pocket expenses or profit from their role as Trustee, save in the case of professional Trustees appointed in their professional capacity
- ensure that the Beneficiaries are kept fully informed to avoid disputes