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Is your Employee Benefit Trust fit for purpose, or is it time for a review?

Is your Employee Benefit Trust fit for purpose, or is it time for a review?

11 September, 2020
Europe Employee Incentive Employee Benefit Trusts

Executive Director, Claire Drummond urges companies to check their Employee Benefit Trusts on a regular basis to ensure they remain compliant and retain value.

When it comes to corporate financial administration, the Employee Benefit Trust (EBT) tends to be left alone. Research happens, it gets set up, is rarely reviewed for suitability and is left in place for years, only to be changed if something goes wrong.

Yet, left alone an EBT can accrue fees, fall out of reporting compliance and not operate as intended.

An EBT is a trust established either in the UK or offshore, set up by a company to hold cash and other assets, such as shares. In operation since the mid-1980s, these discretionary trusts are extremely flexible and continue to be used by companies for legitimate remuneration and tax planning structures. That danger remains though, and an EBT should not be set up and forgotten about. Asking yourself these key questions about your EBT should help identify any issues: 

Times change, companies change - and what makes an enticing incentive changes too. What made a plan best-in-class in the 1990s may now be out of touch with the modern market. Likewise, accountabilities and responsibilities should be analysed to ensure the trust is optimally structured.

  • Is it fit for purpose?

    Times change, companies change - and what makes an enticing incentive changes too. What made a plan best-in-class in the 1990s may now be out of touch with the modern market. Likewise, accountabilities and responsibilities should be analysed to ensure the trust is optimally structured.

  • Is it run efficiently?

    The structure chosen for your EBT will depend on the advice you were given at the time it was set up. However, this does not mean that it is as efficient and cost effective today.

For example, in the 1990s a popular way to structure an EBT was to establish a company with the sole purpose of acting as a trustee to the EBT. Whilst this is still an acceptable way to operate, moving away from this type of structure and appointing a corporate trustee brings with it a number of benefits. These include providing an extra layer between the EBT trustee and the settlor company, enhancing the EBT trustee's independence from the settlor company and also removing the regulatory obligations of the company filings, as well as the associated operating costs.

It's worth reviewing your structure on a regular basis to ensure it remains in sync with the company's needs.

Could there be synergies in consolidating trusts?

Consider your own company's experience since your EBT was set up. Have you merged? Been bought? Grown? Folded some operations? Company experiences and organisational structures change over the years, which can again impact the performance of your EBT. It may be that in times of merger or acquisition, one EBT was superseded by another EBT. Could you enjoy synergies by consolidating multiple EBTs into one? It's a conversation worth having with your provider.

Is your EBT fit for the new market?

We're living in an increasingly regulated and automated world. EBTs set up 20 years ago - even five years ago may well need a review. Ensure your EBT is up to scratch; operating as intended in accordance with the trust documents and the necessary regulatory reporting is being undertaken by your current provider.

Discover more about our EBT and employee incentive services here or contact me via my profile below.