Guide to being a Trustee

The Trustee Guide

About this guide

This trustee guide has been put together to give you an overall view of what you are required to do as a trustee. At the time of publishing it, this guide covers the relevant legislation and regulations relating to trustees and trustee. Therefore, by its very nature, it will become out of date over time. Therefore please come back to us at any time in the future if you have questions or queries regarding your role as a trustee.

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Your role as trustee

The role of trustee is a very special one, as it will put you in control of assets, and give you ownership of assets that you will be holding for the benefit of someone else; the beneficiaries.

A trust has three parties:

 The first is the Settlor. This is the person who established or set up the trust. Usually they are the person that placed assets into the trust, or intend to place assets into the trust in the future, although other people can also place assets in the trust. Usually the Settlor will agree and establish the terms of the trust. It is these terms that you, as a trustee, must comply with in the future.
 The second are the Beneficiaries. The Beneficiaries are the people that are legally entitled to benefit from the trust. The way in which they can benefit will vary depending on the terms of the trust. Usually beneficiaries can benefit by receiving use of the trust assets, or income from the assets or from capital payments from the trust. Very often the trust will have reserve beneficiaries, known as “remainder men”, who effectively benefit from the trust if the main beneficiaries can not.
 The last group are the Trustees. The Trustees responsibilities are to hold the assets that are owned by the trust, for the benefit of the beneficiaries. The trustees must comply with the instructions within the trust deed and only take actions allowed by the trust under law. There must always be a minimum of two trustees on any trust in place.

The above parties are interchangeable. This means that a trustee can also be a beneficiary, or a trustee can be a Settlor, or a Settlor can be a beneficiary. The “inter-changeability” of the parties affects how the trusts can be used under law.

Your Duties as a trustee

Your job as a trustee is to hold the trust property and administer it for the benefit of the beneficiaries. The way in which you do this depends upon the provisions within the trust deed. Also, the Settlor may have written you a guide, or set of instructions, know as a letter of wishes, which you would normally take into account in your actions and decisions.

Many of your duties as a trustee will have been set out in the trust deed, however many are now covered in the Trustee Act 2000 which came into effect on 1st February 2000. There are many rules set out in the Trustee Act 2000; however, the following are the most important and relevant to you.

 You must act in a way that an ordinary prudent business person would be expected to act.
 If any cash is received by the trust, you have a duty to invest the money, unless it is being disbursed immediately.
 You must use the utmost diligence to avoid any loss and will be liable to the beneficiaries for any breach of this duty.
 You must keep proper accounts of all trust property. The beneficiaries are entitled to see these accounts at any time and may require “reasonable” information regarding the dealings of the trust.
 The trustees are personally liable to the beneficiaries for losses caused by their default and bad management.
 The trustees must make sure that the trust money is properly invested and monitor the investments regularly.
 You may not charge for your services as lay trustees.
 When investing money, you must pay heed to standard investment criteria. This means that the investments that you select must be suitable for the trust and that there is appropriate diversification of the investments used.
 Any investments in the trust must be reviewed and amended as appropriate.
 When making investments you must obtain and consider proper advice.
 You must disclose any potential conflicts of interest.
 You must acquaint yourself with the terms of the trust deed.

Your powers as a trustee

The trust deed sets out specific powers for you as a trustee, in particular regarding to the property within the trust. The most important of these powers are as follows:

 Where the trust holds investments, you have the power to buy and sell investments as you see fit to enable you to take account of market conditions.
 Income in the trust may be used to support a beneficiary who is under the age of 18 by way of “education and maintenance”.
 To make payments, where appropriate to the costs of relevant insurance policies, for example building insurance to cover a property owned by the trust
 As a trustee you must act jointly with your co trustees.
 You have the power to exercise your discretion. This means that you must have an active mental process in considering what action you will take. It is usually important to make sure that you make a note of your thought and decision making process when you make changes to trust property.

Dealing with the Her Majesty’s Revenue and Customs (HMRC)

As a trustee, you will be required to keep accounts for the trust, as noted above. This is particularly important where completion of a tax return is required by the HMRC.

In the eyes of the HMRC, the trust is a separate legal person. This means that it will be responsible for the completion of its own tax return, as well as payment of its own tax liability. Taxation on trusts is similar to that of individuals, but there are a number of differences which usually relate to the rate of tax payable and allowances.

As a trustee you are required to complete a return if:

1. The trust generates a taxable event
2. The HMRC requests a return is completed

It is likely, because of the way that the trust is set up, that there will be no return required in the early years. If this is the case, you may find the HMRC send you a return regardless. If this happens you need to simply return the tax return as a “nil return”. This means noting that no changes were made to the trust and that no interest was received and no gains were made.

If you are aware of a gain being made, or interest or income being received you must contact the HMRC to request a return. It is not the HMRC responsibility to ask you to complete a return; it is your responsibility to ensure that one is completed when it is needed.

You can employ an accountant or other financial professional to complete the returns for you and any fees that they charge can be taken from the trust.

Dealing with the Beneficiaries

At your Trustee Integration Meeting, you will have been informed who the beneficiaries of the trust will be. These beneficiaries will also have additional beneficiaries for you to consider in the future.

As a trustee you must act fairly in making investment decisions so that one beneficiary or class of beneficiary is not advantaged or disadvantaged at the expense of another.

As a trustee you will need to build what may be a long relationship with the beneficiaries. In doing this you will be acting in their best interest over the years, as this is one of the reason why you were asked to be a trustee.

Over time you will be asked to disburse money or trust assets to the beneficiaries. In doing this you should consider the requests and wishes of the Settlor. When the trust is created the Settlor will have a purpose for the trust, and it is your role to ensure these wishes are complied with as much as possible. Clearly these wishes can not take everything into account and so it is your role to look towards the intent of the wishes so that you can take the action that the Settlor would have wanted.

Protecting the Beneficiaries

One of the most effective ways to protect the beneficiaries is to release money from the trust in the form of a loan to the beneficiaries. This has the advantage of ensuring that the money released does not usually fall into the beneficiary’s estate. This can usually provide protection of the trust funds from the divorce of the beneficiary and indeed from subsequent Inheritance Tax on the death of the beneficiary. Therefore, you should give a great deal of thought to releasing funds in this way rather than with a simple disbursement from the trust.

Remember, you don't need to be a legal expert to be a trustee, we are always available to help. But you do need to take your role and duties seriously and act at all times for the benefit of the beneficiaries