I have been considering the role of a trustee while practising in trust law over recent months. Professional trustees will have many resources available to them which “volunteer” trustees, such as family and friends of the person setting up the trust, may not. Professional trustees will benefit from training, experience, colleagues for second opinions and books to refer to. The position of the relative, who has (perhaps reluctantly) agreed to take on the role of trustee out of kindness or a sense of duty, may be very different.
Investment of trust funds
What is a trustee obliged to do within the role he has undertaken? By law the duties placed upon a trustee are strict and demanding. For example a trustee must invest the trust assets in the best interest of the beneficiaries, and independent financial advice must usually be taken to determine the investments chosen.
A trustee’s own personal views and beliefs must not be taken into account in determining the investments. For example if a trustee strongly opposes investment in companies dealing in tobacco or weapons, the decision not to invest in such companies can be justified only if investments likely to yield equal or better returns for the trust can be identified. A trustee must receive no personal benefit from his role, and any action which might possibly result in benefit for the trustee must be avoided.
Distributions from the trust
A trustee must comply with the terms of the trust documents as interpreted in accordance with the law. The terms of the trust will determine whether income or capital can (or must) be distributed to the beneficiaries, or whether income must be accumulated and invested alongside the other trust funds.
Where a trustee has discretion over whether trust funds should be paid out, they must regularly consider whether to exercise that discretion. The needs and resources of each person who could benefit from the trust must be considered.
A trustee must complete all the necessary tax returns and pay the taxes which are due from the trust. The taxation of trusts is complex, and transactions may have implications for three different taxes, inheritance tax, capital gains tax and income tax.
Where a trustee fails to comply with his obligations under the law, he may be personally liable for the consequences. The fact that he acts as a “volunteer” and achieves no personal benefit himself, does not protect him from personal liability to the trust fund for losses he has caused.
The role of a trustee is not one to be undertaken lightly. An experienced legal advisor will ensure that a trustee properly understands their obligations under the law, and does not suffer personal liability as a result of an inadvertent failure to fulfil the duties of the role.
AMD Solicitors’ Private Client Department includes full members of “STEP”, the Society of Trust and Estate Practitioners, the leading awarder of specialist accreditation in this field. For advice on trusts, wills, the administration of deceased estates, powers of attorney and all private client issues contact Shelley Faulkner or another member of the team on 0117 9621205, email firstname.lastname@example.org or call into one of our four Bristol offices.
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