If you have been appointed as a trustee on a trust, you might be wondering what this means for you and what your obligations are. Our simple guide to trusts will help you understand your responsibilities and stay organised with trust administration.
A trust is a type of legal relationship where one person (the “trustor” or “settlor”) transfers assets to another person or people (“the trustees”) to hold for the benefit of certain beneficiaries. A trust is often used as a way to protect money or assets. Neither the trustor nor the beneficiaries own the trust property. It should therefore be protected from any claims against their estates.
A trust might be set up under a will when the trustor dies, or it may be set up in a separate deed during their lifetime. The trustees might be family members of the trustor. There may also be professional trustees (such as solicitors or accountants) although it is not necessary to have a professional trustee.
There are different trusts. The main type of trusts being:
- A discretionary trust – This means that the trustees have discretion to distribute trust assets among a number of beneficiaries and can decide how and when to do this;
- An interest in possession trust – Also known as a liferent trust, in which the trust assets are held for the benefit of a particular beneficiary or group of beneficiaries. This might involve property being held for the beneficiaries to live in, or income from trust investments being paid out to the named beneficiaries. Once the liferent interest ends, the trust will either be finalised or may remain in a discretionary trust;
- A bare trust – This is a very simple form of trust in which the trustees are holding the trust assets for a particular beneficiary until the beneficiary requests the funds are handed over to them.
What are my responsibilities as trustee?
The trustees are responsible for owning and managing the assets held in the trust and they must follow the terms of the trust deed when administering the trust. The trust deed will set out, for example:
- who the beneficiaries are,
- why the funds are being held,
- what the funds can be used for, and
- the powers of the trustees.
As trustee, you should therefore make sure you have read the trust deed and understood the terms of the trust and what type of trust it is.
There are also a number of duties upon the trustees, including:
- The duty of care – This means the trustees must act carefully to protect the trust property for the beneficiaries;
- The fiduciary duty – To act in the interest of the beneficiaries; ensuring that the trustee’s own interests do not conflict with the interest of the trust;
- To act impartially and in the interest of all the beneficiaries;
- To consult with each other about all trust decisions;
- To keep trust accounts and ensure that all tax liabilities are met.
What are the tax requirements for running a trust?
As trustee, you will be required to ensure that all tax liabilities of the trust are met. The trust could be liable for income tax on any income earned; capital gains tax on any assets sold and inheritance tax charges at different key times of the trust. Different trusts are also taxed in different ways. As tax rules can be complex, you may need to take specialist tax advice. Or you may wish to instruct an accountant to deal with the tax returns on behalf of the trustees.
Additionally, under new anti-money laundering rules, it is now necessary to register trusts with HM Revenue and Customs under the Trust Registration Service. Some trusts are exempt from this registration requirement, but if registration is required there are strict deadlines for doing so. You should therefore find out whether the trust has to be registered. If so, register it as soon as possible.
What should I do to manage the trust administration?
Being a trustee can be an onerous responsibility. So you will want to ensure that you are taking all necessary steps to fulfil your obligations. The following tips should help you:
- Prepare a trust summary – This will help you retain key information about the trust in one place, such as:
- the type of trust,
- information about the beneficiaries, and
- key dates for the trust such as tax deadlines;
- Set up a trust file – This is sometimes known as a permanent papers file. Use this to retain all the important papers for the trust. This should include a copies of:
- the trust deed,
- any minutes of trustee meetings,
- the trust accounts, and
- any other important deeds;
- Appoint professionals – Depending on the size and nature of the trust, there can be complex issues for you to deal with and you may therefore wish to appoint professionals such as a solicitor, accountant and financial adviser, to help you meet your obligations;
- Hold trustee meetings – One of the duties of a trustee is to hold meetings with the other trustees to discuss the trust and make decisions. The frequency of these meetings will vary, depending on the size and nature of the trust. You and the other trustees should therefore decide how regularly you are going to meet, set a date for you next meeting, prepare an agenda for issues to discuss and keep minutes.
Following our simple guide to trusts will help you stay organised with the trust and will make the trust administration process much more straightforward.
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