Becoming Familiar with the Trust
The Trustees must become acquainted with the terms of the Trust document and in particular establish:
- The beneficiaries of the Trust and their circumstances.
- The assets and liabilities of the Trust, and ensure any title documents for the Trust assets are held safely.
- The location and the manner of operation of any Trust bank accounts. The bank account should be operated in accordance with the Trustees' wishes and all Trustees will need to sign the bank form stating who is to sign cheques.
Acting for the Beneficiaries.
You have an obligation to act in accordance with the Trust’s terms.
- Act honestly and in good faith.
- Act for the benefit of the beneficiaries and the Trust’s purpose.
- Exercise your powers for a proper purpose.
The Trustees should meet at least annually, say after the end of year financial accounts have been completed and, if required by the Trust activities, on a more regular basis.
At meetings Trustees should:
(a) review the activities of the Trust;
(b) review the Trust's investment strategy and monitor the performance of investments;
(c) review the accounts and tax return;
(d) review the situations of beneficiaries and as to whether distributions are required;
(e) decide whether maintenance or repairs are required to any properties;
(f) make any decisions that are required while bearing in mind:
(i) the Trustees should act exclusively in the best interests of the beneficiaries of the Trust;
(ii) the Trustees should act impartially as between the different beneficiaries; and
(iii) the Trustees should act personally rather than delegating any duties to others unless required as part of the operation of the Trust; eg the use of agents or advisors.
Where there is income to be distributed between beneficiaries the Trustees should consider carefully how this is done. The transfer of monies to separate accounts of beneficiaries is sensible.
It is very important for all decisions and meetings to be recorded by way of a Trustee resolution or minute which can be retained together with the other Trust documents. These records are vital should there ever be a question raised in relation to the operation of the Trust and the decisions of the Trustees. These minutes should clearly identify:
- Any relevant background information, including advice or reports.
- The rationale for making the decision.
- The actual decision made.
Where income is being earned it is important to have annual accounts prepared detailing the earnings of the Trust together with an annual tax return.
Keep Personal Affairs Separate
It is important that Trustees should keep any personal affairs separate from the affairs of the Trust. The Bank accounts in particular should be maintained separately so that there is no intermingling of funds.
The Settlor should not continue to deal with assets transferred to the trust as if the assets are the Settlor's sole property as this can have the effect of reducing the effectiveness of the Trust.
It is now imperative for Trustees to have a written investment plan for the Trust. In this regard it is important for the trustees to seek advice from investment advisors or financial planners.
The Trustee Act requires a Trustee to invest prudently and exercise the care diligence and skill that a prudent person of business would exercise in managing the affairs of others. The new Trusts Act 2019 provides that a trustee may have regard to the following matters, so far as these are appropriate to the circumstances of the trust:
- objectives of the Trust or the permitted purpose of the Trust;
- the desirability of diversity of Trust investments;
- the nature of existing Trust investments and other Trust property;
- the need to maintain the real value of the capital or income of the Trust;
- the risk of capital loss or depreciation;
- the potential for capital appreciation;
- the likely income return;
- the length of the term of the proposed investment;
- the probable duration of the Trust;
- the marketability of the proposed investment during, and on the determination of the term of the proposed investment;
- the aggregate value of the Trust estate;
- the effect of the proposed investment in relation to the tax liability of the Trust;
- the likelihood of inflation affecting the value of the proposed investment or other Trust property; and
- the trustee’s overall investment strategy.
The Deed of Trust allows some departure from these principles in certain circumstances.
The Deed of Trust will provide who has the power to appoint and remove Trustees and it is important that it is exercised correctly. If a Trustee is to resign or be removed and a new Trustee appointed it is important that these activities be documented accurately and all appropriate parties advised.
A Trustee is not automatically liable for any loss suffered by the Trust. A Trustee should not have any potential liability if he or she meets the prudent person test of investment and has regard for the interests of beneficiaries and operates the Trust in a businesslike manner.
If the Trustee breaches any terms of the Trust or fails to operate the Trust in the appropriate manner the Trustee may become liable for any losses suffered by the Trust.
Often the Trustees may be involved in the Trust undertaking a liability or obtaining a loan from a Bank and in such case the Trustees should consider whether they are undertaking any personal liability in the transaction or as to whether it is clearly indicated that any liability will only be that of the Trust. It is advisable to have a Trustee limitation of liability clause placed into any document where there is potential liability.
Some of the above information is technical and accordingly advice should be sought from us and/or your accountant.