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A reminder on trustee responsibilities

It has been some time now since our series on trustee responsibilities from the middle of 2014. The issues raised in that series, however, are still extremely topical and very pertinent to trustees in the modern world, so we wanted to remind you of the top level points and why seeking professional advice can be so important for those who hold trustee positions (you can read part onepart two and part three of the series here if you would prefer to read the articles in full).

Trustee Act (2000)

Under the Trustee Act (2000), you have several broad level mandates to comply with, which the act covers in more detail. These are:

  • A statutory duty of care which states: ‘trustees must show such skill as is reasonable in circumstances, allowing for special knowledge, experience or professional status’

  • Duty to ensure that investments are suitable

  • Duty to take account of settlor’s wishes

  • Duty to ensure fairness between beneficiaries

  • Duty to monitor investments

  • Duty not to hoard cash

  • Duty to take account of tax considerations

Suitable Investments

The suitable investments requirement above can be a part of the act trustees particularly struggle with, especially if they have no formal investment expertise or qualification. In this case, seeking independent investment advice is absolutely vital.

A Statement of Investment Principle, prepared with the help of a qualified independent adviser, can help you to show that you are meeting the suitable investments part of the Trustee Act (2000). The statement will cover:

  • Trust objectives

  • The level of risk agreed to achieve objectives

  • The asset allocation agreed

  • The assets benchmarked

  • Tax considerations

  • Strategy review

  • Process documentation

This will then enable you to show that the investments eventually chosen are:

  • Appropriate, suitable, diversified

  • Conscious of the time horizon

  • Aware how much is to be invested

  • Planned for income/growth requirements

  • Planned for immediate tax implications

  • Planned for tax deferral

  • Aware of the eventual tax position

Duty not to hoard cash

The temptation, given the above necessity for investments, is to leave the trust in cash, but this is covered by another part of the Trustee Act (2000), which states that trustees cannot hoard cash.

This decision relies on a piece of case law (Midland Bank Trustees (Jersey) Ltd v Federated Pensions Services Ltd (1996)) which found that the trustees were guilty of gross negligence by failing to pursue a growth strategy for the trust and instead allowing the funds only to accumulate via cash interest.

The result of this is that, broadly speaking, when a trust has a material amount of cash, the trustees must consider investing it unless it is required for a beneficiary in the very near future, or perhaps a handful of other allowable circumstances. This makes the above investment advice even more crucial, covering as it does another of the Trustee Act (2000)’s stated duties.

Other points; litigation and taxation

The act also covers points regarding taxation explicitly and, in our full series of articles (linked above), we discuss the increased threat of litigation against trustees, which is also something to be aware of.

If you are a trustee, or operate on behalf of trustees, and have any concerns regarding the above then please do get in touch with us directly and we will be happy to discuss your current position through with you.

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