Thinking about your Will and wondering whether or not you should include a trust but don’t know what one is, how it works, and what to think about? Then read on!
What is a trust?
A will trust is an arrangement which comes into effect on your death, granting your trustees control over assets on behalf of your beneficiaries.
Why Would I need a Trust?
To protect your assests for the benefit of your loved ones. There are trusts that can look after money for vulnerable adults, trusts to make sure your young children can be provided for, and trusts to make sure your property doesn't fall foul to risks like debt, remarriage, and care costs.
What is a trustee?
A trustee is a person who has been legally designated to manage trust assets on behalf of your beneficiaries and to carry out the trust's provisions. You can choose a maximum of 4 trustees to act but this is down to you it’s ok if you don’t want to have 4 people. This doesn’t include reserve trustees though; you absolutely need some of these in case something happens to your first choice trustees. If the trust involves property or land you don’t have a choice you need to have 2.
What does a trustee have to do?
Fair play among the beneficiaries
Use caution when making investments.
Act with unanimity
wherever necessary, insure trust assets
must behave in a manner consistent with the trust's terms
Observe the Trustee Act 2000
Distribute income and capital to beneficiaries as appropriate
Inform HMRC when IHT becomes payable
Declare all income and CGT for payments
exercise due diligence in protecting the trust's assets.
Keeping proper account
Keep records of the trust’s income and expenses
Complete tax returns and pay any tax due to HMRC
Register trust (https://www.gov.uk/guidance/register-a-trust-as-a-trustee)
Who can be a trustee?
Law requires a trustee must be the minimum age of 18 years old. Although that’s not always the best idea. An 18-year-old is legally an adult but they have 0 years’ experience living as an adult so if you died very suddenly they might not be ready to take on such a responsibility. They need to be of sound mind and it goes without saying they must be trustworthy. You have to make sure they get on, this isn’t a buddy cop movie where it’s cute if they don’t get on, they need to share similar morals and principles so they can manage the trust and make decisions easily.
If you don’t know anyone you can nominate professional trustees like a solicitor or a trust corporation. The benefit of a professional trustee is your family don’t have to worry about anything and it mitigates the risk of beneficiaries leaning on trustees to make decisions you wouldn’t have wanted. I was made aware of situation where a young woman was the beneficiary of a Children's Trust. Her parents did not want her to
inherit until she was 25 as they knew she was very easily influenced. When she 18 she found herself under the influence of a man 16 years her senior (gross but that’s another topic for another day).
It was exactly what her parents feared would happen. A man recognising a young woman with some money who was struggling with the impact of losing both her parents. This older man try would manipulate the young woman in to having her Uncle and Aunt, the trustees, in to going against her parent's wishes resulting in frayed relationship in the family after she was refused. A professional trustee will only act in accordance to your wishes as they are completely neutral and are unlikely to be pressured in such a way as they have zero emotional involvement with the beneficiaries. The only drawback here is they will charge a fee. So once again it’s up to you and how you feel.
What if a trustee isn’t doing their job?
If it comes to this and it can’t be resolved, then the beneficiaries can take the trustee to court and have them relieved of their duties.
Can a trustee take money from the trust?
It would not be worth the trouble; under the Trustee Act 2000 the beneficiaries could very easily take them to court if they dipped their hand in the till so to speak. You may remember in the media some time ago the case of Adam Gray whose father sadly died in the 7/7 bombings. There was a £50,000 cash pay-out with Adam being the beneficiary. His mother was the trustee but was secretly dipping in to it and spending the money on shopping sprees. After Adam found out what she did he took her to court, won, and she ended up going down for 30 months. Although this case wasn’t a situation where she was appointed in someone’s Will the same rules would apply. If you appoint someone and they try and steal they too could end up in the clink like Mrs. Gray.
Can a trustee refuse to pay a beneficiary?
Yes, and no. This is why you need to have a letter of wishes with your trusts. A trustee could reasonably refuse a child money for a big party for all their friends if it goes against your wishes, or if your Dad remarried and wanted to spend some of the trust money on their new wife’s boob job (yes this is a true story). However, if you wanted your children to go to university and the trustees refused to pay for it from the trust, then the beneficiaries could take them to court as the trustee won’t be doing their job.
So there is your introduction to what trusts are. Over the coming weeks we’ll be deep diving in to the different kinds of trusts you can put in a will, also the murky sides of trusts and the greasy practices to look out for.
If you’re looking for free helpful advice on wills and trusts, then make an appointment today and I will be in touch!