We take a look in this, the first of our contentious trusts and executries guides.
Trusts
First, let's look at what trusts are and why they're useful.
You can make unlimited gifts during your lifetime and you may not have to pay any inheritance tax if you survive for seven years from the date of the gift.
The downside of this approach is that you lose control of the asset you've gifted straight away. What happens, for example, if the person you've gifted property to separates from their partner? Gets divorced? Or even dies?
As an alternative, gifting assets, such as property, to a trust means they're held on your behalf without full control being passed over.
They are also a useful way of ensuring your estate is distributed according to your wishes when you die, while potentially avoiding inheritance tax liabilities.
What is a trustee?
When you transfer an asset to a trust, the trustee becomes the legal owner of the assets.
The trust agreement will usually be documented in a trust deed (although this doesn't have to be in writing). Subject to its provisions, the trustee exercises full control over the asset and makes all decisions regarding distributions to the beneficiary or beneficiaries.
The trustee's duties
Clearly then, choosing your trustee wisely is crucial.
The good news is the law also affords some protection in the form of trustee duties.
Duty of care
Trustees owe a duty of care to protect the trust property for the beneficiaries.
The standard of care expected is that the trustees act with the same care and diligence which a person of "ordinary prudence" would use in addressing his or her own concerns.
A trustee who is paid for their services is expected to show a higher standard of diligence and knowledge than an unpaid trustee.
Duty to carry out the terms of the trust
Trustees must administer the trust in accordance with the trust deed.
Duty to effectively administer the trust
Trustees must devote the required time for the proper administration of the trust, this includes holding trustee meetings as often as necessary.
Duty to control the trust property
The trustees have to keep the estate under their own control. Trust money should be kept in a separate bank account, not in the name of the trust solicitor, except temporarily.
Duty to keep accounts
Trustees must keep proper accounts of their dealings with the trust estate. The accounts should show the amount spent, the person to whom payment was made and the nature of the payment.
They must also keep proper records so they can demonstrate to the beneficiaries the actions and decisions they have made.
Duty to invest
Subject to the specific terms of the trust deed, the trustees have a general duty to invest the trust’s funds. It is often the case that modern trust deeds confer express powers of investment on the trustees.
Conflicts of interest
The trustees should not act in a way that creates a conflict of interest between themselves and the trust. For example, they must not personally benefit from a trust.
Duty to take advice
A trustee is not required to exercise personal judgement in matters of professional skill. For example, they should — where appropriate — take professional advice on matters such as legal issues, investments and tax implications.
Breach of trust
If trustee fails to comply with any of the duties they may be acting in breach of the trust and there are various remedies which can be considered, we'll cover these in a future article.
A trustee can ultimately be removed too.
If you're interested in finding out more about trusts, please get in touch, alternatively you can read more commentary on our news and views page.
