Recent changes to domicile rules, as well as to business and agricultural property relief, in the UK have brought trusts and trusteeship into sharper focus for UK-based families and individuals with wealth that they wish to protect.
The impact of these changes, alongside succession planning, asset protection and asset administration objectives, has prompted many to consider, or reassess, their options relating to trusts and other wealth structures.
The role of a trustee
A trustee is an individual or professional entity who takes legal ownership and control of assets which have been ‘settled’ (placed) into a trust.
Trustees have a legal duty to the trust, this ‘fiduciary duty’ requires them to act in the best interests of both the trust and of all current and future beneficiaries, subject to the trust deed. The role bears significant responsibilities, including safeguarding assets for beneficiaries, ensuring compliance with legal and regulatory requirements, maintaining impartiality, and performing all administrative and reporting responsibilities with care and accuracy.
The right trustee(s) add value to the trust and its beneficiaries, although trustees who fail to meet these obligations, even unintentionally, can face substantial personal liabilities and may cause unquantifiable loss to the trust fund. Choosing the right trustees is, therefore, very important.
Three forms of trustee
Trustees of private, non-charitable family trusts can be broadly categorised into one of three forms. Each form of trustee brings its own potential contributions; the right choice will vary from trust to trust and depend on the nature of the trust fund including its:
- value
- complexity
- the type of assets held on trust (e.g. operating businesses, art, digital assets, yachts, vintage cars and more)
- any special expertise required of the trustee
- family culture and dynamics
- objectives
- third-party advisor requirements (including banks and asset managers – which the trustee should identify, evaluate, engage and monitor effectively)
1. Lay trustees
A lay trustee is most often a family member or close friend who is usually not a beneficiary of the trust. Such a trustee is normally unpaid and has a pre-existing, strong relationship with the trust’s beneficiaries. Appointing a lay trustee may bring comfort and familiarity to the beneficiaries and may be the best solution for a straightforward trust where the experience of a professional trustee is not needed.
It is often practical for such trustees to obtain advice for straightforward trusts from external advisors on an as-needed basis, to maintain the good standing of the trust.
2. Professional co-trustees
A professional co-trustee may be a known and trusted advisor; for example, a solicitor or accountant (or the entity they act through), alongside one or more lay trustees. This approach combines the benefits of a lay trustee group with the technical expertise of a professional to advise and manage tax filings, administration and/or keeping legal obligations uppermost in the minds of trustees when needed.
A professional co-trustee who also acts as an advisor can be cost-efficient, as they may charge a nominal, or no, trustee fee, with time instead billed in their advisory role. However, there is also an inherent conflict of interest for anyone who is undertaking both a trustee and advisor role. Other co-trustees may ‘supervise the conflict’ by monitoring the advice provided, ensuring that it is not blindly relied upon. How effective this supervision is will depend on the circumstances.
The professional co-trustee approach is often determined to be the most pragmatic solution for many UK private trusts.
3. Independent sole trustees
The third form of trustee is independent, usually acts alone, and is often a corporate entity called a ‘Trust Corporation’. An independent trustee is normally wholly focused on its duty to the trust and should not also act as a paid advisor. When specialist professional advice is required (such as for legal, environmental, or investment expertise), the trustee will appoint specialist intermediaries.
The independent sole trustee assumes full responsibility and liability for the administration of the trust, offering significant risk management and governance advantages.
As a result of their experience, team, contacts, and focus, a good professional sole trustee provides the highest level of service, continuity across generations, independence from family disputes and sophisticated handling of complex, multi-jurisdictional structures or sensitive family dynamics.
Cost and benefit
When choosing a trustee, fees are an important factor. With growing regulatory complexity, professional support is often essential, and the money saved in avoiding professional fees may be outweighed by the far greater cost of mistakes or missed opportunities caused by ineffective trustees.
Understanding the differences between trustees helps decision makers appoint the right trustee(s) to safeguard their wealth and wider legacy in the most effective way.
