Trustee Investments

An Overview of the Role of a Trustee

Being a trustee is a responsibility and can be complex and time consuming depending on the type of trust it is.  Professional guidance on how to invest a trust fund will be helpful and we are happy to speak to anyone that feels they may need advice in this area!

If you find yourself appointed as a trustee of a trust or charity, you should make sure that you are clear about your role and duty of care under the Trustee Act 2000.  You are required to make objective and well-reasoned decisions for the benefit of all classes of beneficiaries, this can be particularly difficult if you are a beneficiary as well as a trustee.  Having an understanding of the tax reporting requirements will be needed although we can refer you to a number of legal and accountancy specialists for trust tax, accounting and administration services. 

The way that a trust is taxed is one factor that will determine the most suitable type of investment to use.  Some trusts are taxed at the highest rates of income tax (45% on interest and rent and 38.1% on dividends) so making the wrong decision here can be expensive.  There are also complexities that can arise where the person that created the trust (the settlor) is also a beneficiary and for discretionary trusts that distribute dividend income.

It is also important to consider what is required for beneficiaries and that the timescale is relevant.  Are there planned distributions in the future or is the trust intended to remain in place for the life of a particular beneficiary?  

When making decisions around investing, a good starting point is the trust deed to see if there are any specific directions in there.  The Trustee Act 200 has a standard investment criteria that should be followed which, simply put, states that trustees should have regard to the ‘standard investment criteria’, they should seek professional advice and should review the investments from time to time.

The suitability of an investment strategy will depend on the objectives of the trust, the timescale and if known, how funds will be distributed can be helpful.  Identifying the trustees’ investment risk requirement will need careful consideration as the trustees must approach this in their capacity as trustees and not from their own personal perspective.  Being too cautious in their investment decisions could create problems in the future if the trust fund has not, for example, kept pace with inflation.  Beneficiaries may have cause to take action against trustees if the duty of investment has not been considered properly when making these decisions. 

Finally, dealing with distributions and bringing the trust to an end correctly should be dealt with by a professional lawyer or accountant to ensure that HMRC have given clearance in respect of IHT and income/capital gains tax to avoid nasty surprises in the future.