DO YOU NEED A PROFESSIONAL TRUSTEE?

We often help trustees and trusts to manage their investments. One of the most common questions is whether you need to appoint a professional trustee to manage the affairs of your trust. Please note that this article is not intended for trustees of registered charities governed by the Charities Act 1993.

Key points

  • Trustee responsibilities
  • Important considerations when selecting a trustee
  • Do you need a professional trustee?
  • Free resource for trustees

Some quick definitions

  • Settlor
    The person who set up the trust and pays the money in to it.
  • Trustee
    The people who manage the assets of the trust for the beneficiaries.
  • Beneficiary
    The people entitled to receive some benefit from the trust.

Trustee responsibilities

The trustees have an important role to play in the management of trust assets. As such you are legally responsible to the beneficiaries and tax authorities when making decisions. For more information see our article on the Trustee Act 2000.

Considerations when selecting a trustee

Trust

The position of a trustee is extremely important. You should only appoint someone who you know you can trust, since they will be in a position of considerable influence. This is especially true wherever the trust has discretionary powers. You should ensure that you appoint someone who is trustworthy, and who will also follow the spirit of your instructions. A settlor can do this by writing a letter expressing their wishes.

Obviously, appointing someone who is not trustworthy could have disastrous implications.

A friend or family member can easily satisfy your need for someone who is trustworthy. Of course, a professional trustee should be bound be the rules and regulations surrounding their profession. Of course, this does not mean that you should not investigate a proposed trustee thoroughly.

Ability and expertise

The trustee will be required to act in the best interests of the beneficiaries. This means acting within the ability and expertise appropriate to their experience. An amateur trustee will be held to a lower standard than a professional trustee for obvious reasons. A professional trustee would be deemed to be more of an expert and therefore should be judged by their professional ability. Usually, amateur trustees are expected to be appropriately competent rather than having particular skills.

Of course, the duties of trustees require that you meet certain standards, particularly around the completion of tax returns and investing money. this applies regardless of your expertise.

Overall, if you want a trustee to be technically expert, then a professional trustee would be more appropriate. However, it is often the case that an amateur trustee can apply themselves to the technical aspects with the help of a professional adviser, who can assist with difficult areas as required.

Sometimes it can be helpful to have a professional trustee on board to act as an independent voice in complex family affairs.

Time

The management of a trust can take up significant time in meetings and administration. Therefore, you need to be sure that the trustee will be able to devote the required time and attention to what can be an ongoing project. Obviously, a professional trustee can devote more time to their duties but this does come at a cost. Sometimes the right family member cannot become a trustee because they are just too busy.

Cost

This is the major barrier to appointing a professional trustee. Any professional will expect to be paid for their services. These costs can be significant, and you may need to consider the costs of appointing a professional to do tasks versus a volunteer amateur who would be more likely to give their time for free, or for basic expenses.

Age

Trusts often run for many years, and across generations. You should think about the age of any trustee and consider whether they are likely to be able to continue to operate in their role in the future. This also applies to you if you are a settlor and want to appoint yourself as a trustee. A professional trustee might have colleagues who can step in if they  are unable to continue their duties. You should consider how difficult it would be to appoint a new trustee if the trust operates for many years, or across generations. You should apply this principle to any professional trustee since they might not have the appropriate resources to allow for succession in the event of retirement or death.

Do you need a professional trustee?

The short answer is no. Most trusts work perfectly well with only trusted family or friends acting as trustees. Usually, professional trustees work on trusts with larger funds, or complex objectives. The main reason for this is that the fees charged by professional trustees can be significant. Of course, many trusts also work with a combination of amateur and professional trustees. The choice is up to you, but this is usually driven by cost.

Do you run a trust?

We offer professional Investment Management for trustees. This allows you to take advice on investments, while fulfilling your duties as trustees. This can be a useful compromise between appointing a professional trustee and running the trust on a voluntary basis. See our trustee investment case study for more details.

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Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.

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