Effective trust management: helping clients understand how they work and why

Trusts are a useful estate-planning tool. From ringfencing assets to reducing IHT, proper use of a trust can benefit clients in a number of ways, depending on its management and their given situation. 

As advisors, we want what’s best for our clients. But sometimes, clients can be reluctant to take advantage of using a trust when planning their estate. This can be due to concern over its management; the amount of work trusts can create, the idea that trusts are too complicated, or that they’ll impose restrictions on their chosen beneficiaries that will stop them “enjoying their inheritance”. 

Although it’s true some work is required to manage a trust efficiently and learn how trusts work, this does not need to be an onerous or complicated task. With the right trustees appointed, trusts offer your clients far more benefits than drawbacks. 

Live trust management 

When trusts become live, either as a result of a death or for lifetime transfers, certain actions need to be taken to effectively administer that process and document the actions taken. Proper administration and keeping accurate trust records are vital to show the history of how and why the trust management has been executed as it has. 

The success of a trust is primarily down to management and how the trustees apply their discretion and expertise. This ensures that the trust provides the maximum amount of protection possible. 

The following is a guide for advisors on the work that may need to be taken during administration of the trust, so you can help your clients to understand the trust management process, learn about how trusts work and make an informed decision about the use of trusts in their estate planning. 

Note that these following actions may either be as a result of post-death transfers after probate has been granted, or as a result of lifetime transfers being made. Details of these steps may have formed part of the trust planning process. 

Transferring the assets to the trustees 

The purpose of this action is to make an effective transfer to the trustees and show that the asset is a trust asset and no longer an asset of the individual. It covers: 

Conveyance work 

Any property and land should be transferred to the trustees by undertaking conveyance work over the legal title. It is then clear that there is something more happening with the property.  

This also provides as much security over the property as possible; for example, showing a trust as having an interest when somebody undertakes a Land Registry search. In some circumstances, it may not be possible to change title, for instance, when there is a mortgage or equity release in place. In those cases, a declaration over the remaining equity can sometimes be made and a restriction would be added where possible. 

Open a trust bank account 

Liquid assets also need to be transferred to the trustees. This is recommended even if monies are being immediately loaned to the beneficiaries as it shows a full paper trail of the transaction history and that an effective transfer to the trustees has been made. Where CTT are trustees, we open the trust bank account. 

The trustee bank account is a holding account to receive monies before they are either loaned to beneficiaries or invested, which would be the remit of an IFA. It is notable to point out that the trust bank account does not operate like a high street bank, where interest is applied and there’s instant access or a debit card. Because of this, trust bank accounts are not generally designed to keep substantial funds long term and should form just part of the trust management process. 

Deed of assignment 

If there are assignable assets, such as investment bonds, they need to be assigned to the trust. 

Stock transfer

Any shares need to be transferred to the trustees by a stock transfer form. 

Trustee meetings 

Decisions need to be made when a trust becomes live, so the trustees need to meet to discuss and agree what management work is necessary going forward. It’s a common misconception that trustee meetings are required for trusts annually, but this is not the case and not necessary.  

Trustee meetings are usually required: 

• After a death 

• Planning or making changes to the management of the trust 

• When a sale and purchase of trust property is being contemplated 

• To discuss any changes to trustees or beneficiaries 

• To discuss any request for funds from beneficiaries (a schedule of payments can sometimes be pre agreed here, so there’s not always the need for a formal meeting each time). 

Essentially, trustee meetings are only required when there are decisions to make, or at agreed intervals, if none. As the client’s advisor, you can also take part in trustee meetings, so you are kept in the loop. 

Actions agreed 

After the assets have been transferred, the trustees must manage them for the beneficiaries. All trustees have to agree to any action by law, and show that their discretion has been applied, which is why trustee meetings are necessary. Decisions made by the trustees are recorded by minutes taken during the trustee meetings, so their discretion and subsequent decisions are evidenced. 

Loan documents 

Any assets not invested during the trust planning or proposal can be loaned to the beneficiaries to do with as they like. This is always best advice to protect the assets as much as possible. It is important to realise that it is not a commercial loan, it is just a tool used to allow benefit over an asset to be enjoyed while retaining as much protection as possible over it.  

In most circumstances, it would generally be agreed at the outset that the loan would be interest free and is to be repaid only after the death of the beneficiary (so it does not then form part of their estate for their IHT). 

Investments 

Monies that are not being loaned to beneficiaries can be invested. This is regulated work under the Financial Conduct Authority and as such requires the expertise of a Financial Advisor (FA). Families may already have a Financial Advisor, or the advisor that took the original instructions may be an FA or have one they recommend. In the absence of a qualified FA, CTT can source one. When distributions are taken from investments, it is the FA who must be involved to give advice on the tax position. 

Deeds of Appointment and Removal 

These documents are required when there are changes made to the trustees and beneficiaries that will form part of the trust management. The power to be able to take such action is specified in the trust deed and the settlor’s wishes on these matters would be detailed in the trust memorandum of wishes. Some actions are carried out for tax purposes, for example, appointing an Interest in Possession over the trust in favour of lineal descendants to allow the Residence Nil Rate Band to be claimed. 

In some cases, a decision may be made that certain assets are no longer to retain their trust protection (as trustees, we would usually advise against this action). In these cases, an absolute appointment is opted for and an absolute appointment document will be prepared, along with a disclaimer stating that such assets are no longer under the protection of the trust. 

Appointments can also be made over particular assets or income. For example, income can be appointed and mandated to whoever is to receive it. It will then be taxed at their own marginal rate for income tax, rather than the higher rate applicable to trusts. 

Trust tax returns 

The trustees are responsible for dealing with any tax returns, but with the correct management, this can be kept to a minimum. Trustees will need to be mindful of any upcoming taxes such as periodic charges that may be due approaching a 10th anniversary or if assets are disposed, Capital Gains tax. 

If CTT are not trustees 

To advise more specifically on a trust and assist with its administration, CTT would need to be appointed as trustees via a trustee meeting. If amateur trustees wish to seek ad-hoc advice on one of our trusts, or on an external providers’ trust, then we can arrange a trustee meeting and we can sometimes assist with very generic advice towards trust management. 

Conclusion 

This guide should provide you with more tools to explain how live trusts are managed, how trusts work and why, when speaking with clients. As part of our CTT membership, we offer our advisors access to a wealth of webinars, training programmes, and support from qualified staff throughout the company on a range of estate planning expertise, including trust management. 

To find out how you could benefit from CTT membership, or to sign up, see here.