TRUSTEE INVESTMENT DUTIES

This week our in-house trust practitioner and tax expert, Charn Bains, looks at the role and responsibilities of a trustee:

Recently my aunt asked if I would act as a trustee of her family trust. I said yes and asked for copies of the trust deed, all paperwork and accounts. I was surprised to see that since the trust had been formed, the funds have been held in a current account earning very little interest!

Did the trustees make the right decision in these circumstances? Absolutely not, as my Aunt’s wishes and her grandchildren’s needs were not taken in to account.

Before making any investment decisions, trustees need to think about their powers and duties and how this could impact the decisions they make. Let’s explore…

Powers of trustees

Most modern trusts give trustees wide powers of investment, but you should always check the trust deed for any restrictions.

Duty of trustees

As a trustee you have investment powers and you will need to consider what action to take with the trust fund.

You have an overriding duty to use your investment power with care. That means you should look to establish a suitable level of risk and diversification across the entire portfolio.

Reviewing the trust investments from time to time is very important.

The Trustee Act 2000 sets out the standard investment criteria which you must consider, both when making those investment decisions and when reviewing them.

Importantly, you have a duty to balance the interests of different beneficiaries and to act fairly when making investment decisions which could have different outcomes for beneficiaries with competing interests.

How trustees make investment decisions

Suitability: You need to consider if the proposed investment is suitable given the wide range of options. Factors to take into account include the needs of the beneficiaries, the purpose of the trust and the spread and type of existing investments Diversification: This involves maintaining a spread of investments.

Suitability:Family company shares: It may not always be possible or practical to diversify the trust fund. However, even then, you must still consider the need for diversification and keep a note of your reasons not to diversify. You should also review the decision regularly.

Advice from professionals: Trustees have a duty to seek proper advice. So, you may want to appoint a portfolio manager to manage the trust investments. In addition, the trustees must review (and revise, if appropriate) the investment policy statement at regular intervals.

Controlling interests in companies: If you own a large or controlling interest in a private company you might wish to seek a non-executive position on the board of directors. If that’s not suitable, it’s recommended that trustees receive timely copies of board agendas, minutes of meetings and monthly management accounts.

Ethical investment: Although ethical investments have become increasingly popular, your primary duty as a trustee, when selecting investments, will be to obtain the best financial return for the beneficiaries. Therefore ethical considerations will only be relevant when choosing between investments of equal financial merit.

When it comes to making investment decisions, you can use the following questions as a sounding board to aid the process…

1. Is the power of investment wide enough to authorise the particular investment being considered?

2. Is the proposed investment suitable considering the range of investments available?

3. Have you taken suitable investment advice?

4. Have you carried out periodic reviews as to the continued suitability of the investment?

5. Have you considered the need to diversify in the circumstances?

6. Have you shown reasonable care in choosing the investment, with regards to the spread of investments of the trust fund?

7. Where one of the trustees hold a controlling interest in a company have they received sufficient information (e.g. management accounts) to ensure they are aware of any circumstances which may require their intervention on behalf of the trust?

If you need any support with the investment duties of a trustee or would like to set up a trust please get in touch.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 14 August 19. You are recommended to seek competent professional advice before taking any action. The value of investments and the income from them can go down as well as up, and you may get back less than you originally invested. Past performance is not a guide to the future. The investments described are not suitable for everyone. This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information. Tax and estate planning advice are not regulated by the FCA.