Trusts offer numerous benefits for safeguarding assets, ensuring the wellbeing and financial security of loved ones and navigating the intricacies of inheritance. As part of our #AskRL blog series, designed to empower individuals and families by sharing straightforward information about complex legal issues, specialist solicitor Stuart Price answers three commonly asked questions on the subject of Trusts.

  1. What if the Trustees I choose disagree?
  2. Who appoints new Trustees?
  3. Can a Beneficiary of a Trust also be a Trustee?

What if the Trustees I choose disagree?

Trustees have a duty to act unanimously. They must agree on any decision making relating to the Trust. However, they also have general duties to act in the best interests of the Beneficiaries and to protect the value of the Trust Fund. Clearly then, it is in everyone’s interests for Trustees to reach a compromise in situations where they do not agree.

If Trustees continue to disagree, they could approach a solicitor for advice. They might agree to follow the solicitor’s recommended course of action and pay for that advice from the Trust Fund.

In instances where Trustees are particularly entrenched and unable to reach agreement, they could apply to the Court to reach a decision on their behalf. However, Court applications are expensive and should be considered as a last resort. Moreover, the decision reached by a Court might not be in line with the view of any of the Trustees. There is therefore a big incentive for the Trustees to work together to reach agreement themselves.

This highlights the importance of choosing Trustees who are compatible. Often a group of Trustees will include family members or friends that you know well and will get along well. However, sometimes, the individuals do not know each other and may have very differing views. Some thought needs to be given as to how the chosen group will work together.

Who appoints new Trustees?

The power to appoint new Trustees is set out in the terms of the Trust. It is really important that the Trust is drafted carefully to give the right people the power to add and change Trustees.

A Trust will often state that the creator of the Trust, known as the Settlor, has the power to change Trustees. After the Settlor has died, the power to appoint new Trustees resides with the current Trustees. If there are two Trustees and one of them dies, the power of appointing Trustees rests with the surviving Trustee.

Often, the Settlor will prepare a Letter of Wishes to accompany the Trust. Within that Letter the Settlor can set out who they want as Trustees after the current ones retire or pass away. This is extremely useful for the Trustees and allows them to appoint new Trustees confidently and in the knowledge that the Settlor would approve of their decision.

Of course, something might happen to the Trustees without warning which means that they are unable to appoint new Trustees. Perhaps, for example, they die without appointing new Trustees. In these circumstances, the Executors of the Trustee that is last to die have the power of appointing new Trustees. Those Executors, who may have no knowledge of the Trust or of the Beneficiaries, will rely heavily on any Letter of Wishes when deciding who will be appropriate to appoint.

Any Letter of Wishes should be kept up to date. Arguably, an out-of-date Letter of Wishes is worse than no Letter of Wishes at all.

Can a Beneficiary of a Trust also be a Trustee?

Yes, and this is a fairly common arrangement. Let’s say you have a couple with two children. Perhaps one of those children (Christopher) is neurotypical and one of those children (Charlie) is financially vulnerable or lacks capacity to make financial decisions. A Trust is set up which names Charlie as the Beneficiary, and Christopher as a future beneficiary to receive what is left after Charlie has died. The parents might name Christopher as one of the Trustees to help manage the Trust. If Christopher has the necessary skillset to be a Trustee, he is the perfect choice because he probably knows his brother very well and cares for him.

When naming a Trustee who is also a Beneficiary, you must be aware of the potential conflict of interest. In the example given above, there might be a conflict of interest if the Trust names Christopher as a Beneficiary after Charlie has died. If Christopher is asked to use some of the Trust money for Charlie’s benefit, he might be reluctant to do so if he (or somebody else in his life) has one eye on the fact that he will benefit from whatever is left in the Trust after Charlie has died.

Because of this risk, however small, of a conflict of interest, some people choose to appoint independent Trustees (trusted family members or professional advisors) instead.

How can we help?

We are experts in setting up Trusts that are tailored specifically to meet your needs. They can be used for many reasons, including family succession planning, asset protection and tax planning. For more information on Trusts or to speak to us about the process and costs, please do not hesitate to contact us for a discussion about your personal circumstances.

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Stuart Price

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