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Being asked to act as a Trustee by a friend or member of the family can be flattering, it shows they trust you to handle their affairs. But remember that by accepting you will have to take on a lot of responsibility. Trustees are appointed either by way of a Lifetime Settlement or by a Will and the Trustee can also be a beneficiary. The Trustee’s duties include: - Managing and administering the assets of the Trust.
- Protecting the assets of the Trust, e.g. ensuring a property is adequately insured.
- Ensuring the interests of all the beneficiaries are adequately provided for and protected.
- Dealing with Income Tax, Capital Gains Tax and any Inheritance Tax formalities as they arise.
- Distributing income and/or capital to the relevant beneficiaries in accordance with the terms of the Trust.
For Trusts involving money to invest the duties and responsibilities of a Trustee are encapsulated in the Trustee Act 2000, the key elements of which can be summarised as follows: - Obtain proper advice.
- Ensure the suitability of the investment
- Ensure adequate diversification of the portfolio
- Keep the investments under regular review.
If a Trustee fails to observe these principles they leave themselves open to future litigation if beneficiaries are dissatisfied with the Trustees stewardship of the Trust assets. Case Law is littered with examples of Children and Grandchildren suing their own family members for failing in their duties as a Trustee. In many ways a Trustee can be considered to be between a “rock and a hard place” as they are equally at risk of future litigation if they are too cautious in their approach to investment as they are if their approach is too reckless. Equally they can be at risk if they are perceived to be favouring the interest of one beneficiary over another. For example, if a Trust leaves the income generated by the assets of the Trust to one beneficiary, say the individual’s Widow, with the capital of those assets to the Children upon the second death, the Widow cannot be favoured over the Children or vice versa. A compromise generally has to be struck between current income and capital appreciation. Issues of taxation also have a bearing upon the management and administration of assets as many Trusts are subject to tax at 40%, which can dramatically reduce investment returns. Often some or all of the Trust assets can be invested in non-income producing investments to minimise the tax burden. Generally the procedures of being a Trustee are not complicated - provided you are good at paperwork. If you are the sort of person who hates forms or dislikes partaking in official business, then maybe the job is not for you and you should gracefully decline.
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