Investments  

What are the roles and responsibilities of trustees?

  • Explain trustees' duties and responsibilities
  • Identify which accounts and records must be retained for HMRC
  • Describe trustees' investment duties
CPD
Approx.30min
What are the roles and responsibilities of trustees?
 Pexels/Rodnae Productions

Quite often friends and family are chosen as trustees and more often than not they are unsure about what they need to do. 

The key word is ‘trust’. They have been entrusted to look after assets on behalf of a beneficiary or a number of beneficiaries.

With great power, however, comes great responsibility. 

Trustees are accountable for keeping assets safe, possibly investing those assets and making sure that they last for the lifetime of the trust or are used to benefit those listed in the trust deed.

The risks and responsibilities of being a trustee can be a daunting prospect, especially if the trustee is not familiar with the obligations of this role.

Advisers have a role to play in helping trustees understand what they have to do, including pointing them in the right direction and assisting them with the day-to-day management of the trust.

While every trust will be different, there are certain rules and responsibilities that trustees have to follow. A guide for trustees is useful if you advise in this area or are looking to manage trust investments on behalf of trustees. I have found the Trustee Act 2000, HM Revenue & Customs' guides and Prudential's technical guides a great source of help.

Trustees should understand their various duties and responsibilities in respect of five main areas: 

  • appointment; 
  • investing; 
  • protecting beneficiaries' interests; 
  • keeping records including accounts; and 
  • distributing trust assets. 

Duties to be performed on appointment 

The first step is to obtain a copy of the trust and read it.

A trust deed may be in the form of a will trust (assets left on trust when somebody dies) or a settlement deed (a trust created during someone’s lifetime). This will advise the trustee not only of who should benefit, but also of any powers or limitations. 

These powers will be dispositive, relating to how, and in what circumstances, the trustees are to distribute trust income and/or capital; and administrative, relating to how the trust is to be run.

Check whether there is a letter of wishes

Although not legally binding on trustees, a letter of wishes often gives a personal insight into the reasons behind the trust and provides a greater perspective than the deed alone.

For example, it might be that one of the beneficiaries is vulnerable and extra care needs to be taken before distributions are made to them by the trustees, to ensure funds are used as intended.

Know who the beneficiaries are and what their interest is

The trustees must act solely in the interest of the trust’s beneficiaries. The beneficiary has a right to have the trust administered, the trust fund invested and income distributed in accordance with the terms of the trust.

Any investments or properties that make up the trust fund should be in the name of the trustees.

Make sure property is insured

Where there is a property, trustees need to make sure it is insured and that the insurers are noting the trustees’ interests. They also need to arrange for periodic visits to ensure that the property is maintained and not becoming neglected or dilapidated.