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Why would using a professional trustee be a good move?

In previous blog posts I have talked about the differences between standard Wills versus Wills and Trusts One of the reasons that people set up a Will directing the proceeds of their estate into Trust is to protect the estate from potential inheritance tax costs and to reduce the risk of their home being sold to pay for care fees. The aim of this article is to provide further information to those of you that have taken the route of a putting an estate plan in place, utilising both Wills and Trusts.

When a Settlor dies it is the responsibility of their chosen trustees to manage the assets that are afforded the protection of the trust.

Often the trustees chosen are close friends or family members. Which is understandable as people want someone they trust to get the job done. However as you can choose more than one trustee to manage your Trust, you may want to consider one of those being a professional trustee. The number chosen normally ranges from 2 – 4. It is also possible for an institution to act as a trustee.

Carrying out the role of a Trustee can be extremely daunting for an untrained person. Because of this there is a possibility that some of the decisions made may not be completely in the interest of the beneficiary(s). This could be because the Trustees do not have a clear understanding of the impact their decisions may have on the beneficiary’s inheritance.

A professional trustee works in this field every single day and can give consideration to areas not always thought of by newbie trustees. Areas like, tax status, financial status and marital situation, of the intended beneficiary. For example, in a situation where the beneficiary was undergoing financial difficulties or entering into Divorce Proceedings, they would look to ensure that the assets would not be lost to creditors or future ex-spouses.

Professional advice can be crucial in preserving assets and ensuring as much as possible is received by the intended beneficiary(s) and ensuring it is not lost to tax, divorce or in settlements to creditors. A professional trustee can remain impartial as opposed to when chosen trustees are often family members who are also the beneficiaries to the deceased’s estate and this fact can cause some real problems after the death of the Settlor.

Once the deceased’s assets have entered the trust, a Trustees meeting must be held and any decisions regarding the distribution of these assets have to be agreed by ALL of the Trustees. This can often prove to be an issue within some families who have different views on how to best carry out the wishes of the deceased and this often leads to disputes, by appointing a Professional Trustee you can ensure that a totally unbiased approach is taken when dealing with the deceased’s assets and that the Settlor’s wishes are completely upheld.

  • As authors and creators of many Family Trusts, professional trustees are best placed to make any future amendments necessary to ensure the maximum efficiency of the trust.
  • They have the best understanding tax legislation, so can optimise trust efficiency both before and after the first and second death of a Settlor.
  • Professional trustees will have extensive experience and advanced qualifications in the areas of retirement, taxation and trust planning.

What are the duties of a trustee?

  • All trustees should familiarise themselves with the terms of the trust so that they can administer it in accordance with the trust deed.
  • All dealings with the trust fund by the trustees must be for the benefit of the beneficiaries.
  • Trustees must use their utmost diligence to avoid any loss. If they are negligent and a loss arises they may be responsible for that loss to the beneficiaries.
  • Under English law, trustee’s decisions cannot be made by a majority of trustees unless the trust specifically allows this.

There are several statutory powers and these can be quite comprehensive, the following highlights just a few of the main powers:

  • Trustee powers of investment – Section 3 of the Trustee Act 2000 permits trustees to “make any kind of investment that he/she could make if he/she were absolutely entitled to the asset
    of the trust”.
  • Act in the best interest of all beneficiaries – The trustees must judge the suitability of investments having regard to the best interests of all beneficiaries, past and present.
  • Exercise reasonable care and skill – A trustee must pay regard to any specialist knowledge or experience that he/she holds.
  • Review investments from time to time – Trustees must undertake periodic reviews of the investments held by the trust.
  • Take proper advice – When considering any investments, or when carrying out a review of the investments of the trust, the trustees must obtain and consider proper advice.
  • Power to apply income for the benefit of child beneficiaries – The trustees have the discretion to apply the whole or part of the income of a trust for the maintenance, education or benefit
    of a child beneficiary
  • Power to delegate – The Trustee Act 2000 empowered trustees to delegate to agents any of their functions except certain defined responsibilities Trustees Common Law Responsibilities

Below are highlighted just some of the many Common Law Responsibilities a trustee has:

  • A duty to take account of the Settlor’s wishes – A settlor may sometimes write a ‘side letter’ to the trustees containing an ‘expression of wishes’. This is not binding upon the trustees but would stand alongside the trust document and provide guidance to the trustees as to the way in which the settlor would like them to carry out their duties.
  • Duty to ensure fairness between beneficiaries – The trustees must hold the balance fairly between different categories of beneficiary e.g. if a trust provides that one class of beneficiary is
    to receive the income from the trust fund during their lifetime and a second class is to receive capital on the death of the income recipient, it would be unfair to the income recipient if the
    trustees were to invest in assets which produce little or no income but offered the prospect of greater than usual capital growth.
  • Duty to take account of tax considerations – Trustees must take into account considerations such as tax and administrative costs when choosing investments.
  • So there you have it, the above duties are just a few of the main considerations. With the use of a professional trustee, it is within their day to day routine to ensure that all of the trustee’s duties are followed, so choose your Trustee’s carefully to ensure your loved ones get the most out of your inheritance.