28.03.24

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 some 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?
    4. If I have more than one disabled or vulnerable loved one, do I need more than one Trust?
    5. What happens when the main beneficiary passes away?
    6. Who can add to the Trust Fund?

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.

If I have more than one disabled or vulnerable loved one, do I need more than one Trust?

We often advise families who have two or more disabled or vulnerable loved ones who they wish to protect using Trusts.

The number of Trusts required will depend on the type of Trust. The choice of Trust is an important one and must be considered carefully, but the two most suitable options are a Disabled Person’s Trust (DPT) and a Discretionary Trust (DT).

A DPT must specifically name one (and only one) ‘Principal Beneficiary’ and, therefore, you need one DPT for each disabled or vulnerable loved one.

If you opt for a DT, it is likely to be sufficient to have only one Trust for multiple principal beneficiaries – although there still might be compelling reasons for having more than one. Individual circumstances would need careful consideration to ensure the Trust is appropriate.

Whether there are two Trusts or one, there will always be at least one Letter of Wishes to accompany each Trust. Even disabled or vulnerable loved ones with similar ages will almost certainly have very different needs, preferences and circumstances and this can all be captured within a separate Letter of Wishes for each person. The Letter of Wishes can (and should) be reviewed from time to time and kept up to date, whereas the Trust or Trusts will likely stand the test of time and not need to be amended.

What happens when the main beneficiary passes away?

When setting up a Trust many people, understandably, focus on how it will run and how Trust assets can improve the life of the main beneficiary (whether that is their child, sibling or parent). It is also very important to consider what should happen when that person has died. You can do that by setting up layers of succession within the terms of the Trust and the supporting documents, such as the Letter of Wishes.

For example, a person with two children, one of them disabled (Child A) and one of them neurotypical (Child B), might say that when Child A dies, the Trust Fund is to go to any children they leave behind. If there are none, the Trust Fund will go to Child B. If Child B is no longer around, it might say that the Trust Fund should go to Child B’s children.

To cover all situations, the documents might go on to say that, in the event there are no surviving descendants, the Trust Fund is to be divided equally between other family members (perhaps nieces and nephews).

Depending on the type of Trust, the above wishes are unlikely to happen automatically. When the main beneficiary dies, the Trust continues and the Trustees must take steps to distribute the Trust Fund to the appropriate people. This highlights the importance of having sensible and organised Trustees administering the Trust. The Trustees can take professional advice at that stage if they feel they need it, and they may pay for that advice from the Trust Fund.

Every Trust Deed should specify a beneficiary to receive the Trust Fund if there are still assets in the Trust after the statutory Trust period expires (125 years). In practise, this is very unlikely to come into effect as the Trustees will have long since distributed the Trust Fund to other beneficiaries, and so there is no need to agonise over this decision. However, an ‘end date’ beneficiary needs to be named for the Trust to be wound up. Many people will choose a large Charity or a group of Charities, so they can be confident that the beneficiary will exist at the end of the 125-year period.

Who can add to the Trust Fund?

When a Trust has been established, the creators of the Trust (known as the ‘Settlors’) may choose to add funds to it in their lifetimes. This enables the Trust to operate while the Settlors are living and allows them to see it working in practice. The Settlors are excluded from benefitting from the Trust – once assets are added they cannot be reclaimed!

Adding to the Trust in lifetime is very straightforward. It can be as simple as making a bank transfer from a personal account to the Trust bank account. However, such a gift may have tax consequences, for either the person making the gift or the Trust, and so they should take appropriate advice before making the gift.

It is possible for other people to add to the Trust, either in their lifetime or by their Wills. It is very common, for example, for grandparents to want to make a gift to their grandchildren. Having the Trust established allows grandparents to either make a gift to it in their lifetime, or name the Trust as one of the beneficiaries of their Wills.

It is important to remember that anyone who adds to the Trust in their lifetime should be  specifically excluded from benefitting from the Trust to avoid complications. This needs to be considered carefully. For example, perhaps a parent has set up a Trust for one of their children (Child A) and stated that, on that child’s death, their other child (Child B) should benefit from the Trust Fund. In this situation, if Child B wants to make a gift into the Trust for their sibling Child A, they should be advised not to. They should instead set up their own Trust to avoid having to be excluded from being a future beneficiary of the Trust their parent set up.

Legal advisors should explore these issues carefully with you to ensure that all eventualities are considered and appropriately addressed.

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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Author:
Stuart Price

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