Being asked to become a trustee is more common than you might realise. What does it mean, and how can you get help?
A trust is a versatile legal structure that allows property and wealth – collectively ‘assets’ – to be managed by someone who does not own it. It can be used in various ways. It can keep wealth safe for a child while they grow to maturity for example or help minimise estate taxes and probate complications. It can be used for charity, or to shield assets from creditors or legal claims, providing protection for individuals and families.
What they all have in common is that they are operated by trustees.
A trustee is a legal guardian of assets within a trust and must manage and administer them for the designated beneficiaries. Their role includes making prudent financial decisions, ensuring compliance with legal obligations, and acting in the interests of the trust’s objectives.
Being asked to act as trustee – for a relative, friend or a charity body – means taking on some important responsibilities. What exactly does it entail?
What does a trustee do?
Trustees control how the assets in the trust are invested, used and distributed – although they must do this in line with the objectives of the trust, as outlined in the trust deed.
Their actions are guided by the terms of the trust deed and relevant legislation, the most important being the Trustee Act 2000. This sets out the duties of trustees:
Trustees are bound by a duty of care, requiring them to exercise the same level of care as an ordinary prudent person would in managing their own affairs. This duty extends to all aspects of their role, from decision-making to investment management.
Trustees must consider the suitability of investments, their potential for growth or income, and the overall risk profile in line with the objectives of the trust. But simply selecting suitable investments is not enough. As a trustee, you need to monitor and manage investments as closely as you would your own.
You’ll need to look at risk and return. You will be expected to find opportunities for growth but be mindful of the risk tolerance specified in the trust deed and the potential impact on beneficiaries.
This means you’ll need to invest with diversification in mind. Trustees should spread investments across different asset classes to mitigate risks associated with the volatility of individual investments. The Act also features the importance of trustees taking into account ethical and social factors when making investment decisions. You may need an awareness of responsible and sustainable investing.
You will also need to conduct periodic reviews of the trust’s investments. This involves assessing the performance of the portfolio, considering changes in market conditions, and ensuring that the chosen investments remain in line with the trust’s objectives. The Act recognises that investment markets are dynamic. As a trustee you’ll need to adjust investment strategies as needed to respond to changing market conditions and evolving trust objectives.
Trustees who fail in their responsibilities under the Trustee Act 2000 may face legal consequences. Breaching duties, especially those related to investment management, can result in financial liabilities, removal from trusteeship, and potential legal actions brought by beneficiaries.
Getting expert help
The responsibilities as a trustee might seem as if you need to be an investment expert to even consider taking on the responsibility.
Fortunately, the same act that sets the obligations, recognises the complexity of investment decisions. Trustees are encouraged to seek professional advice, especially from financial experts who can provide insights into market trends, risk management, and compliance with legal obligations.
At Continuum, we have ample experience both with investment and with giving trustees the help and advice they need.
If you find yourself in the position of a trustee, the simple answer may be to put your trust in Continuum. Call us to find out how we can help.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation and trust advice or will writing.
The value of an investment can go down as well as up and you may get back less than you invested.
