Preparing for unfortunate circumstances isn’t usually on the top of anybody’s bucket list. Nevertheless, it’s an incredibly important task that should be seriously considered. We may not be able to predict the future, but we can always prepare for the worst.
Financial planning can help leave a legacy to your loved ones, but how exactly does one go about this monumentally important task?
If you’re thinking about creating a Trust to ensure that your loved ones are always financially protected, you may be wondering, “What is a Trustee of a Trust, and why do I need one?”. To make things simple, we’ve created a guide all about Trusts and how to pick the perfect Trustee.
What is a Trustee?
A Trustee is a person you trust to manage the money or Trust assets that have been set aside in your terms of the Trust. This individual is appointed to act in the best interests of the Beneficiaries by honouring your wishes.
The difference between a Trustee and an Executor
An Executor is the individual in charge of formally dealing with your estate after you pass. They deal with the legal aspects of your passing, set in motion the actions that are outlined in your Will and ensure that they are legally conducted. They also make sure that any tax payable is dealt with before any money leaves your Trust.
So what is a Trustee? Trustees are individuals who ensure that the Trust you have created facilitates your wishes on an ongoing basis.
For example, if one of your Beneficiaries asks to take some money from the Trust, the Trustee has the power to grant this request or deny it, in line with your preferences.
The difference between a Trust and a Will
Having a Trust is a great way to protect your assets and ensure they passed down to the individuals they were intended for.
Unlike a Will, which simply dictates who receives your money on the day of your death, a Trust can be used in your lifetime and beyond. It controls how your assets are split and what they are used for, even after they have left your estate. It can also protect your assets from things such as IHT and divorce.
A Trust will be structured to suit your financial and legal needs. For example, if you have young children, you can release inheritance funds periodically and avoid them spending it all at once. It’s also a great way to ensure your legacy isn’t diluted as a result of a child’s divorce.
Having a valid Will that works in conjunction with a Trust can help you avoid going through probate, as your assets will be distributed privately. This can also help speed up the inheritance process and get your assets in the hands of the beneficiaries faster. Lastly, some Trusts can help mitigate and reduce some estate taxes.
What is the role of a Trustee?
Let’s take a closer look at the role a Trustee plays and what their responsibilities are.
Depending on the type of Trust you create, the Trustee will have different responsibilities. Generally speaking, a Trustee is legally responsible for managing all of the assets held in the Trust and ensuring that your wishes are carried out.
They also can have certain legal duties to maintain the integrity of the Trust and preserve the capital as much as possible. For example, the Trustees may have a duty to seek professional investment advice in order to preserve and maximise your assets.
The Trustee is expected to make decisions with the best interests of the Settlor, and their wishes for their Beneficiaries, at heart. Given that the role is legally binding, the Trustee’s failure to fulfil their duties appropriately could lead to legal action. As a Trustee, you are also expected to carry out a fair bit of technical administration.
How to pick a Trustee
The natural inclination for most people appointing a Trustee is to choose someone they trust and respect. However, factors such as age, location, and capability to make decisions, should also be considered.
Ideally, your Trustee should live in close geographical proximity and be someone you can entrust to protect your wealth. You should aim to pick someone younger than you, as Trustee responsibilities can last for decades. They’ll also have to have a certain level of expertise, integrity, and responsibility.
A Trustee must be responsible, as failing to adhere to their legally binding responsibilities could result in personal liability. In order to avoid any manipulation of the Trust, it’s best to appoint someone you can trust to act with integrity. Your Trustees will also need some basic competence or expertise in areas such as tax and Trust administration.
However, it’s possible to employ the services of a Financial Advisor to help your Trustees with any technical problems they may encounter. If you want your children to become Trustees and Beneficiaries, it is vital they use a professional so that their inheritance can be grown and protected with minimum risk.
Advantages and disadvantages of a Trust
The main advantage of having a Trust is that you gain more control over your financial assets and how they are distributed.
On the other hand, creating a Trust could require you to give up a fair bit of capital within your lifetime.
You’ll also need to make some uncomfortable decisions about who gets what. Finally, most estates are not subjected to taxes so this factor may not be influential in your decision-making process.
Picking a Trustee is not a decision that should be taken lightly; a poor choice could adversely affect your Beneficiaries’ welfare, so it’s best to be prudent.
The ideal Trustee is a responsible person who will execute your wishes perfectly and is savvy to the technical elements of the Trust. They should also be young enough to act as Trustee for decades to come and, above all, someone who you unreservedly and wholly trust to act in the best interests of you and your loved ones.
If you’re still asking yourself, “what is a Trustee of a Will?”, don’t worry, we understand that these issues can be complicated to navigate. At Efficient Portfolio, we work with a team of highly qualified professionals who have the skills and experience to help you every step of the way.