Ensuring trust investments remain appropriate

By November 11, 2021Investments
use of trusts - man on laptop

The use of trusts to protect the wealth of a person (or a family), and to pass it down to their beneficiaries has been commonplace in Britain since the Middle Ages. In olden times, before knights set off to battle in The Crusades, they would create a trust to protect their financial interests and ensure their wives and children would be looked after.

While the use of trusts has long been associated with only the very wealthy, trusts have a wide number of uses and are still used today to solve a variety of financial issues, such as mitigating inheritance tax, providing income or a home for a spouse, preserving family wealth, investing for children or grandchildren, or making care provisions for vulnerable relatives. As a result, thousands of people each year are appointed as ‘lay’ trustees, and there’s also a thriving industry of professionally appointed trustees.


What are the responsibilities of a trustee?

Whether a lay trustee or a professional, whoever is appointed as a trustee owes duties of honesty, integrity, loyalty, and good faith to the beneficiaries of the trust. They must act exclusively in the best interests of the trust and be actively involved in any decisions. The general duties of trustees include:

  • To observe the terms of the trust, and follow any duties and directions set out in the trust deed
  • To act impartially when dealing with one or more beneficiaries, and balance competing interests
  • To keep records and accounts for the trust and provide information when required
  • To act unanimously, carefully, and to distribute assets correctly


What duties do trustees have when investing trust funds?

Trustees also have clear and specific responsibilities when it comes to managing investments, which centre on following the duty of care towards beneficiaries and acting in their best interests. For example, while in most instances trustees are able to invest in any type of asset (unless the trust deed specifically restricts some investments), the trustees must consider the purpose of the trust, and – most importantly – the needs of the beneficiaries when establishing the investment policy.


Choosing the right investments

A trustee also must, from time to time, review the investments in the trust and make sure they are still appropriate. This is often the area of responsibility that lay trustees and indeed professional trustees overlook. In our experience, it’s all too common that after a trust is set up and investments are made, the continued monitoring and oversight of the investments is forgotten about. Not only is this ignoring the responsibilities of the trust, but if investments are left alone and underperform over several years, the loss of capital could have disastrous consequences for the beneficiaries.


What are the risks of not doing anything?

If you have been appointed as a trustee, you could be liable if beneficiaries feel that the trust has been mismanaged and this includes the investment decisions made. Ultimately, this could lead to a trustee being taken to court by the beneficiaries to recover any amount of money lost due to trustee negligence or mismanagement. It’s important to note that a lay trustee who is not acting in a professional capacity is just as liable as a professionally appointed trustee.

Therefore, anyone appointed as a trustee – professional or otherwise – has a personal responsibility to take advice that ensures funds placed in a trust have been appropriately invested, and that the funds are monitored and regularly reviewed.


Can people get help with their duties as a trustee?

Managing a trust can be complicated at the best of times. It’s important to keep up with the rules relating to trusts, as well as any new legislation that crops up. The good news is that trustees can get professional help from financial planners, accountants, and solicitors. When it comes to managing investments, we think it’s in the best interests of the beneficiaries and the trustees that advice is sought – and taken – from professional financial planners like us. We can help to make sure the investments held in the trust are on course to meet their objectives, and we can carry out other key tasks, such as ensuring the trust is properly structured, and that investments are tax-efficient and well diversified where necessary.

Acting as a trustee is a privilege, but it doesn’t also have to be a burden, provided trustee responsibilities are carried out as fully as possible. Where necessary, it’s a good idea to take professional financial advice before making decisions – particularly investment decisions – on the trust, and to ensure regular reviews are carried out.

If you are interested in discussing trust arrangements with one of our experienced financial planners at FAS, please get in touch here.

This content is for information purposes only. It does not constitute investment advice or financial advice.