Robb says: “That person will charge for their services, payable out the trust fund, but it may be money well spent in less straightforward situations.
“The client might draw up a letter of wishes for the attention of the trustees, and while that is not legally binding it will at least impose a moral burden on the trustees to recognise those wishes.”
Also, to ensure the trust operates as intended, the client should confirm that the trust wording in the will is crystal clear so the trustees’ powers are not in doubt.
Robb explains these powers will be “dispositive”, meaning how and in what circumstances the trustees are to distribute trust income and/or capital – and “administrative”, meaning how the trust is to be “run”.
“Appointed trustees must read the trust deed and be comfortable in the knowledge that they are doing the following:
- Acting in the best interest of the beneficiaries.
- Acting impartially between beneficiaries.
- Are responsible for investing the trust fund.
- Reviewing investments from time to time.
- Keeping accounts/records as necessary.
The trustees’ overarching responsibility is to preserve and safeguard trust property. If that responsibility is compromised then the beneficiaries will be disadvantaged and the trustees might be held to account.
So clients and advisers need to be aware of the issues that might occur.
Robb says trustee investment duties are critical to ensuring the client’s wishes are kept, as trustees have a duty not to sit on cash and must invest the trust fund.
He adds: “Almost certainly, the trustees will have wide investment powers thanks to the law, the trust deed or a combination of the two. The counterbalance to these wide investment powers is that the trustees should ensure the proposed investment is suitable and consider the need for diversification.”
The right adviser
There is then an ongoing requirement to keep the investment(s) under review. Unless the investment is small, or the trustees possess relevant investment skills, “proper advice” should be taken – from an independent financial adviser for example.
An IFA might recommend that the trustees should consider UK and international insurance bonds or shares in open-ended investment companies, as these can provide a number of potential benefits, such as:
- Access to professional investment management
- Special tax treatment
- Diversification within a single holding
- Administrative convenience and costs savings
Robb says: “Also, via an insurance bond wrapper, the trustees may be able to enjoy multi-asset investments with a smoothing process to protect them from short-term volatility.”
Smart says that when picking a trustee, the client needs to consider who is likely to outlive the other and whether client and trustee are likely to stay in touch over the long term.
“If not, this could cause delays while the trustees are traced, or they’re removed and replaced by someone new. It’s also important to check what powers you have to change the trustees in case you fall out or they move away. Once appointed it’s then important to stay in touch with your trustees so that should you need to change them this can be done at the time rather than having to make changes at the time of a claim.”
