Trusts and estates: 5 key duties Trustees must carry out

Are you becoming a Trustee or already fulfilling this duty for a Trust?

It is important that you are familiar with the duties you must undertake, as failure to meet these could result in you being removed as Trustee, or in some cases, even being made personally liable for inadequate running of a Trust.

In this blog article we look at the key legal and reporting duties that Trustees must carry out.

Trusts – the basics

A Trust is a legal arrangement where one or more ‘Trustees’ are made legally responsible for holding assets. The assets or estate – such as land, money, buildings, shares or even antiques – are placed in trust for the benefit of one or more ‘beneficiaries’, typically a child, spouse, relative or charity institution.

Trustees manage Trusts on behalf of the Settlor (who is the person who sets up the Trust), for the benefit of the Beneficiaries. The Trustees must make sure that their actions are in the best interests of all Beneficiaries. The Beneficiaries may take legal action against the Trustees if they act outside the terms of the Trust.

Who may become a Trustee?

• Trustees must be over 18 and mentally capable.
• A Beneficiary can also be a Trustee, but this can give rise to a conflict of interest.

There are some circumstances in which a Trustee can be removed, for example if they are made bankrupt or remain outside the UK for more than 12 months or refuse to carry out their duties.

5 key Trustee duties

Unless they are excluded or amended by the Trust Deed (or Will), the law imposes that the main duties for Trustees are as follows:

1. General Trustee duties

The Trustee’s duties are imposed by the Trust Deed and general law. Trustees must carry out their duties with reasonable care and diligence and they have a fundamental duty to act in the best interests of the beneficiaries. Trustees must protect the trust property including taking steps to ensure that the legal ownership of any Trust property not yet passed to the beneficiaries is properly transferred. Trustees should not follow the suggestions of the settlor or beneficiaries if this is not for the overall benefit of the beneficiaries as a whole.

The Trustees also have a duty not to profit from the trust and are not entitled to any benefit or reward for their services except in so far as the Trust instrument allows. They must also not purchase Trust property, except in very exceptional circumstances.

2. Following the Trust Deed

The Trust Deed will indicate the type of Trust and the powers and duties that the Trustees will be granted. The Deed should specify the settlor of the Trust, original Trustees, beneficiaries (either named individually or as part of a group), the life span of the Trust and the period in which income can be retained within the trust, the powers of investment and the powers of distribution.

3. Investing Trust property

It is likely the Trust Deed will provide guidance on the types of investment permitted and Trustees will generally have the power to invest as if they were entitled to the assets. Some investments, such as ISAs, are not available to Trusts. It is important to consider the needs of all of the beneficiaries when making investments and their specific goals, whether providing income or protecting capital. The Trustee should make (or organise with a financial advisor) regular reviews of the Trust investments and consult with beneficiaries regarding issues such as tax and benefits prior to making distributions.

4. Distributions to the beneficiaries

Trustees have a responsibility to ensure the trust assets are distributed in line with the terms of the trust deed. As a Trustee you must identify the potential beneficiaries of a Trust. The beneficiaries should be listed in the Trust Deed either by name or as part of a group/class, such as “my children and remoter issue”. Trustees are usually required to act impartially with regard to the beneficiaries, unless the Trust Deed specifically states otherwise.

5. Tax and accounting duties

The Trustees have a duty to declare any taxable income and gains to HMRC by completing Trust and Estate Tax Returns under the Self-Assessment regime. HMRC’s tax requirements and penalties apply equally to Trustees and individuals.

The Trustees have a duty to keep true and accurate accounts of all transactions for which they are responsible as Trustees. Beneficiaries are entitled to examine the accounts and the Trustees must ensure these are available for inspection at any time. The accounts may be audited up to once every three years (unless the Trust Deed provides otherwise), although in practice this is very uncommon for a private trust.

There are several different types of Trust and the sort of records you will need to keep will vary. In all cases however you should keep the following documents:

• Bank statements for current and deposit accounts
• Confirmation of interest paid into bank or building society accounts
• National savings bonds or certificates
• Certificates issued by life assurance companies
• Details of any income other than from investments (such as rent)
• Dividend vouchers from companies and unit trusts
• Stockbroker reports and record of dividends
• Details of expenses paid by the Trustees
• Details of all taxes paid by the Trust
• If you are the Trustee of a Discretionary Trust, records of income payments to beneficiaries.

Remember to keep details of any transactions made using online bank accounts -these may not send out paper statements.