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Trustees – What Responsibilities Do They Have?

Trustees have a wide range of responsibilities when administering the trust estate under their charge.

What is a trustee?

A trustee is a person or organisation that holds and administers property or assets held in a trust for the benefit of a third party. A trust can be created for a variety of purposes. For example, trusts can be established in bankruptcy situations, in certain types of retirement plans or to manage assets on behalf of a minor or somebody who lacks the mental capacity.

Alternatively, a trust may be established to hold assets with income and capital to be distributed to beneficiaries over time. For example, a lump sum of inheritance money may be held on trust for an eighteen-year-old until they reach twenty-five, but the trustees may have discretionary powers to release some of the money early for things such as university fees, or driving lessons.

Trustees have a fiduciary responsibility to the trust’s beneficiaries. This means the trustee must act in the best interests of the beneficiaries when managing the trust assets.

What are a trustee’s duties?

A Trustee’s duties are wide-ranging and varied.

Making Decisions

Trustees must make all the decisions regarding the trust. They are responsible for determining how the assets are acquired, used and distributed. They also need to implement the purposes of the trust for the benefit of the beneficiaries. Further, they must always make decisions within the rules of the trust, and they have a duty to exercise reasonable care, skill and diligence when doing so.

The Trustee Act 2000 expanded trustees’ investment powers, especially if the trust is a discretionary trust. The Act balances this though with safeguarding the interests of beneficiaries to prevent any misuse or abuse of these powers.

Additionally, the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) granted trustees the authority to acquire freehold and leasehold land in the UK, and the Trustee Act 2000 built upon this framework, further expanding Trustees’ powers and providing further guidance.

Under general Trust law principles, subject to a few limited exceptions, trustees must act unanimously when making decisions, unless the Trust Deed states otherwise.

Managing assets

Trustees are responsible for managing the assets in a trust, including money, financial instruments, property and other assets such as cryptocurrency. The assets must be managed for the benefit of the beneficiaries under the trust.

Trustees can instruct professionals to act on behalf of the trust to assist in the acquisition and disposal of assets.

Acting in the best interests of the beneficiaries

As mentioned above, the trustees must, at all times, act in the best interests of the beneficiaries. They must be impartial to ensure no single trustee benefits over others. They must also avoid any conflicts of interest which may arise in relation to themselves and their own affairs, and the trust estate under their charge.

Follow the rules of the trust

Most Trusts are set out in a document called a Trust Deed. The Trust Deed establishes the trust and sets out the powers of the trustees and the rules designed to benefit the beneficiaries. Trustees cannot ignore those rules when making decisions and must always follow them, even if a beneficiary disagrees with them.

If the trust is a discretionary trust, the extent of the discretion will be specified in the trust. Again, trustees should ensure they do not exceed the powers or breach the rules set down in the Trust Deed.

Keeping accounts, paying taxes and the Trust Registration Service (TRS)

Not all trusts are taxable. However, where they are, it is the trustees who are responsible for reporting to HMRC and ensuring that any taxes due are paid.  The range of taxes might include Inheritance Tax, Capital Gains Tax and Income Tax. The Trustees may have to prepare accounts each year and submit returns to HMRC, even if tax is not due, although trustees can instruct accountants to prepare accounts on their behalf.

The area of tax in relation to trusts is complicated and in a constant state of flux. For this reason, trustees should stay on top of all relevant rule changes and seek appropriate financial and tax advice from qualified professionals. If you are a trustee, ignorance of the rules is no excuse for failing to follow them.

The Trust Registration Service (TRS) is an arm of HMRC. Since September 2022 most trusts (with a few exceptions) have been required to be registered with the TRS. For those trusts that are registerable, registration is mandatory and the responsibility of the trustees.

Registerable trusts that are not registered can be subject to an HMRC penalty of £5,000.

Complying with the common law duty of care

All trustees must comply with the common law duty of care. This means they must act with the level of care, skill and diligence that a reasonable person would exercise in managing their own affairs.

Think carefully before accepting a trustee appointment

The duties and responsibilities of trustees are onerous and can take up a great deal of time. They may bring you into conflict with the beneficiaries of the trust and this can be challenging, especially when they are family members.

Before accepting the position, take professional advice about the duties and responsibilities and familiarise yourself with the rules under which you are being asked to act as a trustee.

If you are looking to appoint a trustee, have been asked to act as a trustee, or would like more information regarding the contents of this article, please contact our highly regarded and friendly Wills, Tax and Probate team at info@spiresolicitors.co.uk or call 01603 677077.

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