In the intricate world of trust administration, poor management can have serious consequences. When contemplating the establishment of a trust or the replacement of an existing trustee, there are crucial questions to pose to a prospective trustee. Paul Buckle, Director of Private Client Services, and Tracey Neuman, Private Client Executive, provide their wealth of knowledge and offer invaluable insights to ensure that mismanagement doesn’t come back to create problems for settlors and beneficiaries.
1. Clarity on trust terms & purpose
It all starts with understanding the very essence of the trust. Misinterpretation can lead to trustees inadvertently breaching trust, favouring specific beneficiaries at the expense of others. Seek an explanation of trust terms, and when in doubt, engage a solicitor for a thorough review. Keeping supplementary documents, like letters of wishes, up-to-date and aligned with current expectations is paramount.
2. Power dynamics & decision-making
Who holds the power and how are decisions made within the trust? Questions surrounding protectors or settlor-reserved powers require careful consideration. Ensuring a proper flow of information and defining the roles of involved parties is vital. Inquire about the practicality of the decision-making process with your trustee.
3. Investment policy
The absence of an investment policy statement can lead to an inappropriate risk profile for the trust and unsuitable investments in complex products. Ask your trustees for their investment policy statement, and make sure it's up to date. This ensures a well-informed investment strategy aligned with your trust's objectives.
4. Handling dominant beneficiaries:
Dealing with dominant beneficiaries is a delicate art. Weaker trustees may capitulate to their demands, often to the detriment of the trust. Engage in open dialogue with your trustee on how they would handle such situations, emphasising the importance of challenging conversations and regular contact with beneficiaries.
5. Tax considerations:
Tax intricacies can be overwhelming, especially when trust assets, settlors, and beneficiaries span different jurisdictions. Staying updated on tax regulations and regularly seeking advice is crucial to avoid unexpected or excessive tax charges. Enquire about your trustees' recent tax advice, and request a review if significant changes have occurred.
6. Reporting obligations:
In a world of increasing disclosure requirements, trustees must understand what needs to be reported to avoid costly investigations and potential legal repercussions. Query your trustees about any disclosures made on your behalf and seek expert advice to ensure accuracy and compliance. Foresight is your best defence.
7. Trustee's response to loss:
If a loss appears to affect the trust fund, you must understand the new trustee's approach. Ask prospective trustees how they would endeavour to recover the loss and determine who bears the cost.
Protecting your wealth
At Ocorian, we provide highly experienced trustees and trust administration services for all types of trust including private trust companies (PTCs), managed trust companies (MTCs) and private unit trusts (PUTs).
Trust services has been at the heart of what we do for over 50 years.
Contact us today to find out more about trust services.