Entrepreneur & Investor – The Role of the Trustee – The Benefits of Having Third Party Professional Advice

Director Frances Davies examines the role of the Trustee and the benefits of having third party professional advice for Entrepreneur & Investor.

Setting up a trust, choosing a trustee and defining the parameters of the role which the trustee is to play is something which more and more people are looking into, particularly as a device via which to smooth the process of estate planning. Creating a trust allows people to pass on their assets in the form of a gift, without actually handing over control of those assets. It means that the next generation can enjoy some of the advantages of access to property, land or money without having to shoulder the full burden of responsibility, enabling the person giving the gift to enjoy the security of knowing that their assets are safe whilst also helping to provide a better life for the beneficiaries in a tax efficient manner.

The creation of any trust consists of three main roles; the settlor, the trustee and the beneficiaries. The settlor is the person setting up the trust, having chosen their trustee and beneficiaries, whilst the property or assets held by the trust form the trust property, and the people charged with the responsibility of managing the trust are the trustees. When a trust has been set up as part of a person’s Will, as is frequently the case, the trustee and executor will often be the same person, although this isn’t a hard and fast rule, and trusts can also be set up prior to making a will via a ‘trust deed’.

When setting up a trust of this kind it’s absolutely vital that third party professional advice is sought. Although there are standard duties applicable to all trustees, the precise details of every trust will be different. Indeed, according to your situation you may be advised to create a discretionary trust, an express trust or, in specific circumstances, a secret trust. An expert adviser will be able to explain exactly which type of trust is the best fit for your financial and family situation, and will then draw up the trust deed in such a way as to detail exactly what powers the trustees will have, what their duties will be and how you wish to have the assets of the trust, whether that means income or capital, distributed to the beneficiaries or otherwise used to benefit them.

Although there are general trust laws laying the foundations of such arrangements, any trustee will run the risk of a legal challenge from the beneficiaries if, at some point in the future, it is felt that their actions do not match with the intention and terms of the trust deed. It’s for this reason that a careful drawing up of the original deed is so vital, setting out exactly how the trust is to be managed moving forward, and providing a clear and comprehensive guide if conflict arises at a later date.

The duties of the trustees will include dealing with the trust property in the manner set out in the trust deed, which means making payments or passing on assets in line with the terms initially laid out by the settlor. On a day to day basis a trustee will be responsible for the running of the trust, undertaking duties such as paying applicable tax on any income the trust generates, safeguarding the trust property and choosing how best to invest and utilise the trust property for the well-being of the beneficiaries. At all times a trustee has to act in an impartial manner, using any professional skills which they can bring to the role (i.e. such as those of a lawyer, an accountant or financial adviser) and keeping records of the running of the trust.

Whether you wish to create a trust which you also manage whilst you’re still alive, or one which is managed on your behalf following your death, you have a duty to the next generation to ensure that the deeds of the trust are drawn up in such a way as to protect the assets and to allow the beneficiaries to gain maximum benefit from them. Similarly, nobody should accept the duties and responsibility of being a trustee lightly, and without having the full implications explained to them by an impartial, professional third party.

Frances Davies

Associate Director, Private Law

Frances specialises in tax and succession planning for high-net-worth multi-generational families, and for business owners seeking to protect their assets and to find ways to pass their wealth on to future generations.

Learn more about Frances Davies