Courtiers Wealth Management
Courtiers Wealth Management

News & Insights

A Question of Trust(s) II – The Protagonists

“Trust, but verify”
Ronald Reagan (1911-2004)

Three key groups of people form a trust fund. For any kind of trust to work, each individual in each group should know their role, responsibilities, options and obligations from the start.

Group One – The Settlors

Creators. One or more settlors are required to set up and put funds into a trust fund. As part of the process, settlors must identify any beneficiaries (one to an unlimited number) and appoint at least one trustee…

Group Two – Trustees

The decision-makers. Trustees are responsible for any final decisions regarding any investment of the trust funds and ultimately to whom and when the trust pays out.

Trustees have specific duties set out by the Trustee Act 2000 which include, but are not limited to:

  • Protecting the interests of beneficiaries.
  • Keeping accounts and records.
  • A duty of care to the trust and the beneficiaries.
  • To invest the trust assets – the funds must not sit in cash indefinitely.
  • To assess the suitability of the investments.
  • Distributing fund assets to beneficiaries.
  • Reporting and paying tax on behalf of the trust.
  • Avoiding conflicts of interest.
  • Obtaining and considering proper advice about how the power to invest should be exercised.

The responsibilities held by a trustee cannot be taken lightly. As the list above shows, the careful appointment of efficient and capable bodies to act as trustees is a crucial stage in setting up a successful trust fund.

Group Three – Beneficiaries

A beneficiary is an individual or group of individuals that the settlor intends to benefit from the trust fund.

The decision on who the settlor wishes to benefit from the trust fund will affect which type of trust is best to arrange.

It is unlikely that the settlor would also be a beneficiary unless there is a partial interest retained. We will cover this in a separate article in the future.

Identifying Trustees

With the level of responsibility assigned to a trustee, careful consideration of who is appointed is likely to influence whether a trust fund performs to a suitable and satisfactory standard.

  • Settlors should appoint one or more trustees.
  • Typically, between 2 and 5 trustees are appointed.
  • A settlor may appoint themselves as trustee (many often do).
  • Any trustee should be at least 18 years of age and of sound mind.
  • Trustees are obliged to act in the best interests of the trust and any beneficiaries. Their integrity must be indisputable.
  • Trustees should be responsible and think long-term. Instead of acting in haste they should fully consider all implications of any decisions made.
  • Trustees should be reliable: settlors should ensure that any trustee is likely to be around when decisions on the trust fund are required.
  • Family members who are trustees are normally required to avoid tension. Any conflict of interest could impact on the ability of the trustee to act in accordance with the strict Trustee Act 2000.
  • At least one trustee should be “independent” to avoid any doubt that the settlor retains full control over the trust assets.
  • While the responsibilities at hand are safer with a suitable trustee, circumstances can change.

This list is not exhaustive but offers some guidance on the kind of people a settlor should consider for the role of trustee.

The Trust Deed

The trust deed is an essential part of any trust and combines all parties. Settlors, trustees and beneficiaries need to be aware of the trust deed and understand the vital and binding information it contains on how the trust fund will operate.

It is important to set up a trust deed correctly for the trust to meet the purpose it is intended for.

A valid trust deed must show certainty of intention, certainty of subject matter and certainty of objects. If any of these are absent, the validity of the trust could be challenged.

The trust deed will set out (amongst numerous other things):

  • The date of creation of the trust.
  • Who may benefit from the trust.
  • Who the trustees are.
  • Who the settlors are.
  • The powers to remove and appoint trustees.
  • Any other general powers that the settlor(s) and the trustee(s) have.
  • Any liabilities that the trustees have.

All settlors and trustees must sign the trust deed to confirm all are in agreement with its contents and the nature / details of the trust fund.

Nobody can foresee the future. Sometimes trustees may no longer feel that they are able to act in the required capacity, or worse a tragedy may occur. If you are a settlor, it would be prudent to have in mind replacement trustees, so that they can act quickly if the need to do so arises.

Understanding earlier on who is involved in a trust fund and each key role’s responsibilities can help ensure that the creation and running of the trust fund is a much smoother process.

Courtiers can help individuals and businesses with the entire trust fund process, from identifying a suitable model, to the drafting of the trust deed. Settlors do not need to tackle everything alone.

When considering the use of trusts within overall financial planning, knowing which questions to ask is an ideal starting point and this is covered in my previous article, A Question of Trust(s).

The next trusts article will look at the various types of trusts which can be set up. Subscribe to COURTIERS News if you’d like an email when this is released.

To find out more about trusts or explore your options in more detail, please speak to your COURTIERS Adviser.

Tax treatment depends on individual circumstances and may be subject to change in the future.

Warning – the views expressed by Courtiers in this summary and any video and video transcripts, are reached from our own research. Courtiers cannot accept responsibility for any decisions taken as a result of reading this document, watching the featured video or reading the video transcript and investors are recommended to take independent professional advice before effecting transactions. The price of stocks, shares and funds, and the income from them, may fall as well as rise. Past performance is not necessarily a guide to future returns.

We do not endorse nor accept responsibility for the content of any website not operated by Courtiers which you may visit by following a link from this article.

Share Article

Subscribe to News & Insights

This field is required
This field is required
Please provide a valid email address
Please accept