Trusts
Understanding What a Trust Is
A trust is a legal arrangement used to protect assets and control how they are managed and passed on. Those assets may include money, property, investments, or valuable personal possessions.
Trusts are often used for asset protection, inheritance tax planning, and preserving wealth for future generations. They can be created during your lifetime or written into your will so they come into effect after your death.
The terms of the trust are set out in a trust deed or a will, which also names the trustees and the beneficiaries. Once assets are placed into trust, the trustees become legally responsible for managing and safeguarding what is known as the trust fund.
Choosing the Right Trustees
Selecting trustees is one of the most important decisions when creating a trust.
Trustees must be over the age of 18 and, ideally, based in the UK to help avoid unnecessary tax complications. Usually, between two and four trustees are appointed. The people you choose should be honest, impartial, reliable, and capable of working together over what may be a long-term commitment.
A non-professional trustee cannot charge for their time or profit from the role, and they may be held personally liable if they fail to act with reasonable care. For that reason, it is essential to speak to any friends or family members before naming them, to make sure they are willing and suitable to act.
In some circumstances, professional trustees may be the better choice. This is often the case where the trust is of high value, legally complex, or where there may be tension between beneficiaries.
Although professional trustees charge for their services, many people value the neutrality, knowledge, and administrative experience they can provide. A beneficiary can also act as a trustee, but this should be considered carefully.
Where a beneficiary is also responsible for making decisions, there is greater potential for conflicts of interest, so their ability to act fairly and in the interests of all beneficiaries must be assessed with care.
The Responsibilities and Ongoing Duties of Trustees
Trustees have a wide range of responsibilities and must always act in accordance with the trust deed.
Their duties typically include protecting and insuring trust property, registering the trust with HMRC where required, keeping accurate records and accounts, managing payments or access for beneficiaries, completing tax returns, and ensuring any taxes due are paid.
Trustees are also expected to meet regularly, review investments, seek professional financial advice where needed, and comply with wider legal duties, such as those that apply if trust property is rented out. In many cases, trustees appoint professionals such as solicitors, accountants, or letting agents to support the administration of the trust, with those costs usually paid from the trust fund.
Trusteeship is not always permanent. A trustee may retire if they no longer wish to act, or if age or health affects their ability to continue.
If a trustee dies, becomes bankrupt, loses capacity, or is no longer fit to act, a replacement may need to be appointed. Trustees must also act unanimously, which means disagreements can create serious difficulties. For that reason, it is wise to appoint people who will work well together and who will follow the trust deed and any letter of wishes carefully.
Trustee duties begin once assets are formally transferred into the trust. For trusts created by will, this is usually after probate and once assets have been transferred by the executors. For lifetime trusts, duties begin when the deed is signed and the property is transferred. Keeping your will and trustee appointments under review is essential, especially if circumstances change over time.