Once your client has decided to use a trust one of the fundamental decisions is making the right choice of trustee. This article highlights the importance of appointing a suitable person to act as a trustee.
Who can be appointed as a trustee?
Providing that an individual is over the age of 18 and is mentally capable, there are no legal restrictions on who can be appointed as a trustee. However, trustees should have the skill and time to ensure that they perform their duties correctly.
Trustees have many duties once they have been appointed. Below identifies just some of their main responsibilities.
General duty of care
Trustees are subject to a general duty of care and must ensure that they act in the best interests of the beneficiaries. They must show such skill and care as is reasonable taking into account the circumstances. When taking into account what is in the best interests of the beneficiaries the trustees must act in accordance with the provisions of the trust deed. They must inform themselves of the provisions of the trust deed and comply strictly with the provisions of the trust as well as considering any directions that have been made by the settlor. In addition, they must also comply with any statutory obligations set out in the law of the trust and understand the relevant law that applies.
Trustees have a statutory duty of care. They are also given wide investment powers and when complying with these obligations trustees must ensure that they seek proper and appropriate financial advice before they make a proposed investment. They must also continue to review the suitability of any particular investment on a periodic basis. In addition, they will have to meet regularly to ensure that the trust is still appropriate for the beneficiaries, as well as clearly documenting any decisions they make and ensuring that they submit appropriate tax returns.
Often the decision is made to appoint family members as trustees. Care must be given to ensure that the trustees will act impartially and in the best interests of the beneficiaries and that a conflict of interest does not arise.
There is always the potential that trustees may fall out in the future and disagree on how the trust should be administered; trustees must always act unanimously, unless the trust deed provides otherwise, which may lead to a dispute having to be resolved by the court if they cannot agree.
It may therefore be advisable to consider the option of appointing a protector. Whilst a protector does not have the same powers as a trustee, they do have certain obligations to fulfil. A protector could act independently and oversee the trustees' actions. They can also act as a point of liaison between the trustees and the beneficiaries to resolve any disputes that may arise, which may prevent the court being involved.
Depending upon the jurisdiction that governs the tax reporting, there may be tax liabilities which need to be administered. There may be tax to pay upon the creation of the trust, throughout the trust period or upon any payment out of the trust. In addition, it may be that annual tax returns are also required for the trust.
To exercise reasonable care and ensure correct distribution of assets
Trustees must ensure that they do not allow a conflict of interest to arise. In doing so they must make sure that they exercise any discretion they have fairly and not allow one beneficiary to suffer at the expense of another. They also have the responsibility of balancing the potential conflict between providing an income to the beneficiaries and preserving the value of the capital from the trust fund.