Estate Administrators: The Trustee
N.B These guidance notes apply only to England and Wales
INTRODUCTION
The role of a trustee is not to be underestimated. The duties and responsibilities of such offices are serious and as such should be undertaken with care.
A Will is one of the most important documents that we as individuals will sign. It deals literally with a lifetime’s accumulation of wealth and personal possessions. What happens to these assets will be determined by the Will, or in the disastrous situation where a person dies without a one, by the law of the land.
If within a Will there are any trusts created, there will also be an appointment of people to look after the assets of the trust. These people are known as the trustees. They may also be the executors, but this is not a requirement. A trustee’s role is generally fiscal in nature. Unlike that of an executor, it does not embrace many (if any) non-monetary duties.
The choice of who to appoint as a trustee is not always an easy one to make. The notes below can help guide your decision.
Trustees
The choice of appointing trustees is similar to that of choosing executors. The advantages and drawbacks of personal executors and professional executors can be applied to that of personal trustees and professional trustees. Often the executors would also be appointed as the trustees within a Will.
However, it is important to understand that the roles carry different responsibilities. Although being an executor can be onerous, there is a distinct start and finish to the role. Often the administration of an estate by executors would be completed within twelve months of the date of death. There are estates that are straightforward and therefore may be completed quickly and sometimes there are estates that have complications that can cause the administrative process to extend over years.
The role of the trustee commences once there has been a handover of assets from executors to the trustees. Trusts can last for as long as 125 years, but cannot extend beyond this time period. Therefore, the role of a trustee will usually be for a longer period compared to that of an executor.
Under the terms of the trust, there would be powers for the trustees to appoint their replacements. Thus, a trustee can retire from the role and with the other trustee(s), appoint someone else as a replacement.
The trustees are appointed to hold the trust assets on behalf of the beneficiaries of the trust. It is possible for a trustee to also be a beneficiary of a trust. The trustees will draw their powers from the provisions of the trust contained within the Will.
Trustee powers are extensive, including broad powers to invest and apply assets for the benefit of the beneficiaries. Depending upon the type of trust, the trustees will have powers to advance money to beneficiaries, be that in the form of income or capital. They will have powers to both lend and to borrow money. This can be extremely helpful in the administration of the trusts and in terms of estate planning.
The role carries a great weight of responsibility as the trustees must always act in the best interests of the beneficiaries. Occasionally there will be competing priorities between beneficiaries and it is the responsibility of the trustees to ensure that they act in a way that achieves the objectives of the trust.
Ideally, trustees will be guided by the testator by way of a Memorandum of Wishes which they will have prepared and reviewed through their lifetime. This side letter is a valuable document to trustees as it outlines the intentions of the testator.
Responsibilities of a Trustee
First Steps – Registering the Trust & preliminary matters
Register the trusts with HMRC using form 41G. This needs to be sent to:
HMRC Trusts & Estates, Ferrers House, Castle Meadow Road, Nottingham NG2 1BB
Alternatively, a letter can be sent with the following information:
the name of the trusts (usually named after the testator);
the names and addresses of all of the trustees;
the contact details of any professional agent, or a trustee's telephone number if there is no professional agent (the trustees may choose to appoint an agent);
confirmation that the trust is governed by the law of England & Wales;
the date the trust started (generally the date of the testator’s death;
confirmation that the trusts were created under a Will;
Open a trustee bank accounts:
This will generally be a current account in the name of the trust, with the trustees being the signatories to the account. Trust proceeds (income, dividends etc) can be paid into the account and then investments and appointments to beneficiaries made by the trustees are funded from this account;
Review the insurance arrangements for trust property:
if there are assets of a tangible nature (usually buildings, art work, jewellery etc) then the trustees will need to consider the insurance arrangements. If the trust owns any other valuables, these should be insured. In most cases, however, the chattels will be owned by the surviving spouse, so the spouse should ensure that adequate insurance is arranged for such items;
review the testator’s assets which were not nominated to specific beneficiaries and so should be transferred to the trust fund. Share Certificates and other investments will need to be held in the name of the trust;
consider the appropriateness of the investments to ensure that the trusts provide income as necessary, whilst also achieving some capital growth. It is usual for the trustees to seek guidance on the suitability of an investment strategy from a financial adviser. This is especially important where the needs of a surviving spouse and/or minor children must be met;
Sell any assets the trustee is obliged to sell:
This might include private company shares the testator owned. Often there will be an agreement or an option exercised in which the surviving owners of the business will require the sale of the testator’s shareholding in return for a fair market price.
Second Steps – Understanding the Trust Objectives
read any Memorandum of Wishes and discuss with the co-trustees;
consider the financial needs of the beneficiaries, consider any specific requests from them and consult with them about the trustee’s collective decisions;
consider the investment strategy to be adopted to meet the objectives of the trust;
observe any restrictions or exclusions that the trust imposes on types of investment;
unless specifically rejected by a client, in all 40RTY Will trusts, full powers to invest are granted to trustees i.e. they have the same investment freedom as if they were themselves absolutely entitled to the trust’s assets;
obtain and consider investment advice from a qualified financial adviser to ensure that the Standard investment criteria are met. This is to assess the suitability to the trust of the kind of investment proposed, whether the particular investment proposed is suitable as an investment vehicle of that type and the need for diversification of the trust’s investments as appropriate to the circumstances of the trust
On-Going Steps – matters that Trustees continue to be responsible for
asset management -if trustees delegate their asset management functions to an agent, the agent must be appointed in writing;
duty of care – trustees exercising their powers must keep in mind the paramount obligation to manage the assets for the benefit of present and future beneficiaries;
keeping accounts - these should be maintained from the estate accounts prepared by the executors at the commencement of the trust;
preparing annual and periodic tax returns as required
CONTACT 40RTY
It is always important to review your circumstances as family life evolves and when cultural, political and tax legislation changes occur. Keep up to date with developments and seek expert advice from firms like 40RTY.
Estate Planning is an integral part of our service. As well as minimising the effects of IHT, many families wish to ensure the preservation of their wealth through several generations by making provision for children, whilst also considering events such as divorce, bankruptcy and accounting for later-life care.
Contact Jules for more information: julesj@40RTY.co.uk - 07184 838 660