TRUSTS AND TAX SERVICE

ARE YOU A TRUSTEE?

If you are a trustee, or perhaps you are a solicitor and your practice acts as a trustee of an investment fund appointed to protect the interests of beneficiaries, you will know that the role has become more onerous as a result of Trustee Act legislation.

Recent legislation has widened trustees’ power of investment. Trustees must now obtain and consider proper advice about the way in which trust investments are managed. Here “proper advice” is defined as meaning “the advice of a person who is reasonably believed by the trustee to be qualified by his ability in, and practical experience of, financial and other matters relating to the proposed investment”.

A further requirement of trust legislation now requires that due regard be given to “the suitability to the trust of investments”. This is now generally regarded as extending to the tax efficiency of alternative types of investments. Another requirement on trustees is to ensure that investments are sufficiently diversified to reduce risk. For example, it may be viewed that a portfolio of shares alone is not sufficiently diversified, when it could include equities, bonds, property and cash. This too may mean using more than one fund management group.

Another issue for trustees is that of “failing to monitor investments”. Legislation requires that trust assets be kept under regular review. If there is a failure to do so, ultimately a legal action by beneficiaries against the trustees could ensue for damages.

Traditionally, many trusts have mainly held portfolios of shares, with some bonds and cash. Often there can be undue exposure to higher levels of risk than is desirable.

So if you are a trustee, are you satisfied all the above is being met? Are trust assets sufficiently diversified, suitable and do they have regard to tax efficiency? If the beneficiary of a trust that holds significant assets asks you as a trustee, when assets were last reviewed in the light of the above legislation, how would you answer?

Solutions to help practices (and advisory companies) with their trustee work are available from Regent. As independent financial advisers and actuaries we can work with all trustees, investment managers, advisers and solicitors to give advice to ensure trust assets are held in forms that are most suitable for all concerned. For help and advice, contact us or use the Enquiry Form.