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7 min read 29 Mar 22
Trustees must understand their various duties and responsibilities in relation to:
Trustees have wide investment powers through the Trustee Act 2000 (E&W), Charities and Trustee Investment (Scotland) Act 2005 and Trustee Act (Northern Ireland) 2001. This means that unless the trust deed restricts the type of investment, they are able to invest in any type of asset.
When choosing appropriate assets to invest in, the trustees must consider the purpose of the trust and the needs of the beneficiaries and apply the standard investment criteria accordingly, these are:
A trustee must from time to time review the investments and consider whether having regard to the standard investment criteria, investments need to be varied.
Trustees must act impartially between the beneficiaries and ensure that one beneficiary does not benefit at the expense of another. Consider for example an interest in possession trust where one beneficiary is entitled to income with others entitled to capital on the death of that person. Those ‘competing’ beneficiaries should be treated fairly unless perhaps the settlor had made it clear that one class of beneficiary was to be preferred over another.
For example, if the trust states that income is to be provided for a beneficiary, then trustees should consider income producing assets such as OEICs or unit trusts. Investment bonds are not income producing assets and withdrawals from bonds are a return of capital not ‘income’. Where a beneficiary is only entitled to income, then the trustees should bear in mind that an insurance bond is not appropriate:
It may be that the trust gives the trustees power to pay capital to that income beneficiary. In this case, the trustees are following the terms of the trust, but they still need to consider the impact of eroding the capital for the remaindermen.
A trustee must not place himself or herself in a position in which his or her duties as a trustee conflicts with his or her private interests.
The trustees can only act within the terms of the trust deed. If they act outside those powers they are said to be in breach of trust. A breach of trust will cause some detriment to the beneficiaries. As trustees can only act in the interests of their beneficiaries a newly appointed trustee is obliged to check that there have been no previous breaches of trust. If there have been such breaches the situation must be remedied. The beneficiaries may absolve the trustees from responsibility for the consequences of the breach. Otherwise the trustees have to make good any loss to the trust fund from their own resources.
A trustee has a general duty not make any profit from the fact that he or she acts as trustee. Professional trustees may charge for their services in a number of circumstances:
HMRC make it clear that a record of trust income and expenses must be kept to complete the trust and estate tax return and pass information to beneficiaries.
The HMRC guidance details:
Clearly a non-income producing insurance bond will simplify the accounting and record keeping requirements.
The legal responsibility for registration, where appropriate, with the Trust Registration Service, lies with the trustees.
In a discretionary trust the trustees will have a power to accumulate income. Accumulation is the process whereby, under the terms of a trust, the trustees are authorised or required to accumulate income, thereby converting it into capital.
In “interest in possession” trusts the beneficiary (or beneficiaries) having the right to income must receive that income – within a reasonable period of the trust’s accounting year end. The beneficiary will need to include this income in his or her self-assessment tax return so needs to know the quantum of income fairly promptly.
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