7 important things to know if you’re a trustee

Chris Broome – Chartered Financial Planner

As a trustee, you may be unsure about what your responsibilities are and the steps you need to take. If you’re acting as a trustee, here are some of the essential things you need to know.

Being a trustee means that you’re taking responsibility for money or assets that someone, known as the “settlor”, has placed in a trust for someone else, known as the “beneficiary”. You may have to make decisions about how the assets are used or when they are distributed.

colourful umbrella in the rain

There are many reasons why someone may set up a trust. It can be an efficient way to pass on wealth, create a family legacy, or give assets to those who cannot manage them themselves, such as children. Perhaps you’re also thinking about setting up a trust to pass on or protect your own wealth.

So, if you’re acting as a trustee, here are seven essential things you need to know.

1.  The decisions you make must be in the best interests of the beneficiary

As a trustee, you must act in the best interests of the beneficiary. This means you must consider their needs, as well as the trust agreement, when you’re deciding how to use or distribute the assets.

If you don’t act in the beneficiary’s best interests, you could be taken to court and face penalties. As a result, it’s a good idea to keep records of your decisions and notes of the reasons why, if necessary.

It’s important to note that you won’t be liable if the value of the assets falls, as long as you acted in the best interests of the beneficiary. So, if you invested the assets in a risk-appropriate way and the value of the investments fell, you would not face penalties.

2.  You won’t benefit from the trust yourself

Unless the trust specifically makes provisions for you, you won’t benefit from the trust yourself. This means you cannot take an income from the trust for the work you’re doing.

However, you can claim some expenses. You must incur these costs through your responsibilities of managing the trust. Again, you should ensure you keep clear records of any expenses you want to claim.

3.  You should read the trust agreement carefully

How much freedom you have when making decisions will depend on the type of trust and the trust agreement the settlor has written.

If you’re managing a discretionary trust, you will usually be able to use your own judgement when deciding how and when to use the assets. In other cases, the settlor may have left instructions or imposed restrictions that you’ll need to follow.

The trust agreement will set out what you can and can’t do, so it’s something you should read carefully and refer back to when making decisions.

4.  You may be responsible for paying tax the trust is liable for

Some trusts are liable for tax, and as a trustee, you’ll need to understand what tax is due and ensure it’s paid.

Depending on the assets held in a trust and their value, a trust could be liable for Income Tax, Dividend Tax, and Capital Gains Tax, as well as others. However, there may be allowances you can use to reduce the tax bill.

Understanding the tax liability can be complex but it’s a crucial step if you’re to avoid unexpected bills. We can help answer your questions.

5.  You may need to register the trust

From 1 September 2022, many trusts in the UK will need to be registered with the Trust Registration Service. As a trustee, this will be your responsibility.

All “express trusts” in the UK, whether or not they are liable for tax, must be registered unless they’re on the exclusion list.

An express trust is created by a settlor, including those created in a will, rather than those created through a court decision or the law. As a result, it’s likely you will need to register the trust you’re responsible for.

6.  You will be responsible for keeping track of records

Keeping track of records is an important part of a trustee’s role, from showing any tax liability to how you’ve distributed assets. This evidence can be invaluable if there are ever any disputes with the beneficiary and for tax purposes.

You should keep the necessary records for at least six years, but it’s a good idea to keep them as long as possible.

7.  You can ask for advice

Managing a trust can be overwhelming and a lot of responsibility. Remember, you don’t have to do it all alone and you can seek advice when you need to.

Speaking to a legal professional about what decisions you can make can put your mind at ease. When you’re making financial decisions, a financial professional can also give you confidence that you’re making decisions that are appropriate for the beneficiary.

If you’re a trustee and have questions about your role or would like to set up a trust yourself, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate trusts or estate planning.