Trustee Responsibilities

Guide to trusts and your responsibilities as a trustee

Introduction

You have been chosen as a trustee of a trust that has been set up for a life assurance policy. This shows the confidence that has been put in you by the person who created the trust (the settlor).

Your role as a trustee is normally a simple but important one. It will usually make a few demands on your time and not involve you with complex legalities, but it will enable you to provide a very valuable service to the settler and the beneficiaries of the trust.

What is a trust?

A trust, in the simplest terms, is a way of making a gift, whilst retaining some control over who benefits from it and when it becomes available. Instead of the gift being passed directly to the intended beneficiaries, they are transferred to and held by people known as trustees. That gift could be anything from a house to a life assurance policy. The remainder of this guide refers to trusts for a life assurance policy.

Why have a trust?

Trusts are often used with life policies, primarily to speed up payment of a claim. They are also widely used as a means to reduce a possible inheritance tax liability or to provide funds to help pay an inheritance tax bill.

Who can be a trustee?

As long as you are over the age of 18 and of sound mind, you may act as a trustee.

How many trustees will there be?

Normally at least two trustees are appointed at outset. If a trust, for whatever reason, has only one remaining trustee then at least one should be appointed.

What will I be responsible for?

As a trustee you will be the legal owner (or one of the legal owners) of the policy and as such, you will be responsible for the administration of the trust and the assets contained within it.

The trustees are responsible for any trust funds. This involves deciding who should benefit, under the terms of the trust, and when the trust funds should be distributed to beneficiaries. For a life cover such funds will only arise if as life assured dies. If there is a payout the proceeds may be reinvested by the trustees, for instance, if the chosen beneficiaries are young children. Other duties of the trustees include:

  • Carry out the expressed terms of the trust instrument
  • Defend the trust
  • Prudently invest trust assets
  • Be impartial among beneficiaries
  • Account for actions and keep beneficiaries informed
  • Not delegate
  • Not profit
  • Administer in the best interest of the beneficiaries

How will the trustees work together?

If you are one of several trustees, all decisions that you make must be reached unanimously. A majority decision is not sufficient.

Will I be paid for acting as a trustee?

As a non-professional trustee, you will have no right to payment for acting as trustee.

Are there any other duties?

In addition to the responsibilities already, mentioned, there are a number of further duties that are imposed on trustees by law. Of these, possibly the most important is the duty to preserve assets of the trust. This means that you should not take unnecessary risks with the trust funds. Although as a trustee, you are not expected to have any specialist knowledge you do not already possess, you need to ensure that any funds that need to be reinvested are done so appropriately and this may involve obtaining relevant investment advice.

You must not make any personal profit from acting as trustee. You must hold any trust funds for the benefit of all the beneficiaries and must not favour one at the expense of another, unless the trust gives you the discretion to do so.

Securing your financial future

Hopefully, you will now have a better understanding of the trustee role and its importance. You may also appreciate why the settler set up the trust and the financial security that a trust can provide. This may have made you consider your own financial arrangements.

CLS Financial Advice can offer advice in this area. One of our financial adviser’s will be able to provide you with information and support to help you understand the benefits of protecting you and your loved ones.

Write your policy in trust

If you already have a life insurance policy or are thinking about taking one out, CLS Money can arrange a bespoke policy to match you exact needs whilst giving expert advice and of course, putting the policy into a trust. Furthermore, there is no charge for doing this.

The information contained within this page is based on our understanding of current law and HM Revenue & Customs practice. For further information see: https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3