The Trustee Act 2000 details the main responsibilities of trustees but does not address the practicalities of trust administration. The following tips may assist trustees in the performance of their duties:
1. Obtain a copy of the trust deed, because this sets out the objectives of the trust and provides the mandate for the trustees, including their investment powers.
2. Find out whether the settlor of the trust has executed a letter of wishes, which would be read in conjunction with the trust deed and provide non-binding guidance as to the settlor’s intentions. It is often considered desirable to have a letter of wishes where beneficiaries could have conflicting claims on the trust.
3. Diarise important dates such as the dates on which interest in the trust will vest, the 10-year anniversaries of discretionary trusts and dates for agreed distributions of trust funds.
4. Check to ensure that all the trust assets are in the names of the trustees or under their control.
5. Ensure that investment advisers are properly briefed as to the objectives of the trust and any letter of wishes, and that in the case of discretionary investment managers, a policy statement is agreed which accurately reflects the risk profile of the beneficiaries and the need to balance their interests.
6. Hold regular meetings between trustees, investment managers and, where appropriate, beneficiaries. Ensure that the meetings are minuted so as to provide an audit trail to demonstrate compliance with the requirements of the Trustee Act. If there is a power to accumulate funds, it might be wise to record whether or not this power is being exercised.
7. Keep accounts which can be considered by the trustees and supplied to beneficiaries, so as to demonstrate transparency and reduce the risk of possible criticism by a disgruntled beneficiary.
8. Keep records of beneficiaries and their addresses up-to-date, so as to avoid the cost of having to locate missing beneficiaries at a later date.
9. If any beneficiary could be vulnerable, for example on account of youth or age or infirmity, ensure that no one is exercising inappropriate influence. It may be necessary to request receipts, to prove how monies distributed from the trust have been spent.
10. Check from time to time that beneficiaries to whom payments are being made are not subject to bankruptcy orders.
11. Be mindful of the requirement of Section 4(2) of the Trustee Act to review trust investments regularly. The seminal case of Nestle v NatWest Bank provides a salutary warning of the consequences of neglect.
12. If the trust has made a loan to a beneficiary which is subject to interest, make sure that the interest rate which is being charged is competitive and that other beneficiaries are not being unfairly prejudiced.
13. Ensure that full use is made of the trustees’ annual capital gains tax exemption, but check first that the settlor has not created more than one trust, because the value of the exemption will be divided between all relevant trusts.
14. Report investment losses to HM Revenue and Customs to ensure that these can be set against capital gains.
15. If the trust has a ‘tax pool’ of tax paid by the trustees in earlier years on income which they had received but had not distributed to beneficiaries, consider whether this might be used to distribute income to beneficiaries who either are not subject to income tax or pay income tax at the lower rate, so as to allow some or all of the tax which had previously been paid to be reclaimed.
16. If the settlor could stand to benefit from the trust, liaise with the settlor or their accountant to find out if they have received a tax reclaim which is now due back to the trust because the trustees have paid tax at the higher rate which is applicable to trusts.
17. Be aware of the tax implications of distributions of capital made by the trustees from the trust funds or assignments of interests under the trust. If a trust is being wound up it might not be appropriate to pay monies if the would-be recipient is receiving means-tested benefits or might be involved in divorce proceedings or be assessed for nursing home fees or face an increased liability to inheritance tax.
18. Where the trust assets include property, make sure that this is properly insured and that the insurance company has noted the trustees’ interests. Also, ensure that the property is being properly maintained; and make sure that any life tenant is complying with any requirement to meet the costs of repair and insurance.
19. Finally, lay trustees need to be aware of the responsibilities which trusteeship entails, and the risk of personal liability if these are neglected or paperwork is ignored. Those who do not feel able to take on these commitments might be invited to step down.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
