Choose your trustees wisely

Rachael Griffin explains the importance of an impartial trustee.

Trusts are generally at the crux of any wealth management planning, which as a consequence means that the legal ownership of an asset passes from the Settlor of a trust to the selected trustees. People often use personal trustees, however, in many cases personal trustees are not fully aware of the statutory responsibilities that they must adhere to. Settlors can also be unaware of the potential conflicts which can occur when asking family members to be a trustee.

A recent case reported in the press* highlighted the importance of exercising caution when choosing a trustee.

John Wild died in June 2009. His assets included a business empire worth £2.3 million and a home worth more than £1 million. Mr Wild left all his assets in a discretionary will trust with his widow, daughter and son as beneficiaries. Mr Wild's son was one of the trustees of the will trust and was convinced his mother had disinherited him, so he refused to agree to advance a trust payment to his mother (one of the beneficiaries). Mrs Wild and her daughter took court action and the court ruled in her favour and removed the son as a trustee, therefore, allowing a trust payment to be made to Mrs Wild.

The role of trustee has its own legal capacity. Anyone can be a trustee, providing they are aged 18 or over and are mentally capable. They are required to comply with the conditions set out in the trust deed and also statutory obligations set out primarily in the Trustee Act 2000 (the Act).

The Act introduced a duty of care for trustees to follow when carrying out their duties. Section 1 of the Act states:

"...[a trustee] must exercise such care and skill as is reasonable in the circumstances having regard in particular:
(a) to any special knowledge or experience that he has or holds himself out as having, and
(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession"

A professional, or independent, trustee removes the moral and personal burdens of providing objective trustee decisions, which may weigh heavily on a friend or family member. A client can be confident that his stated wishes will be fully taken into account, without the possibility of personal complications. Imagine the difficulties a family member may face attempting to cater impartially for children from previous marriages, or ensure fair distribution of funds for a widow or widower.

For an adviser, making sure trustees are meeting their statutory requirements, especially where they are an enthusiastic but "unqualified" trustee, is likely to be time consuming and yet it may prove difficult to justify a charge. Introducing another layer of professional services as part of the overall advice package can further enhance the value of any advice given and simplify matters for all parties involved.

* Source: The Telegraph 10 June 2013.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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