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Leaving a legacy to your loved ones is a wish shared by many of us. So, you speak to your professional adviser, select the most appropriate Trust structure and set your dreams in motion. But now you are faced with an incredibly important decision; who do you select as your Trustees? This may seem like an obvious question. The natural inclination for most people would be to pick the people they trust and respect the most in life, but let’s be honest, 88 -year old Great-Aunt Doris (as lovely and caring as she is) may not be the ideal candidate. So, who is?
Before I answer that question, I feel that it is important to highlight a few features of most Trusts. Being a Trustee is a long-term commitment, as some Trusts can last up to 125 years; Trustees could be in place for decades to come, hence why ‘Doris’ may not be the right choice! Trusts are also legally binding and require a fair amount of technical administration. Failure to correctly fulfil the associated duties can lead to court action being taken. I don’t mean to scare you with this information, but highlight the fact that the business of selecting Trustees should not be taken lightly.
Bearing in mind the basic financial and legal comprehension required, is it not the obvious choice to select a professional Trustee who has expansive knowledge of these areas? Well, actually no, but they are an option. Professionals do play an important role in your Trust planning, but not always as Trustees, as I will touch upon later.
Your Trustees are appointed to act in your best interests and in accordance with your wishes. They need to be people whom you rely upon and implicitly trust. More than that though, they need to be people who have the expertise and personal characteristics needed to carry out what can be significant responsibilities. Ideally, Trustees should be:
As I have already touched upon, a Trustee needs some basic competence in areas such as tax and Trust administration. Not all people will have these qualities, but, as a rule, people who have relative wealth will. If your Trustees utilise the services of a Financial Adviser, chances are that they will already be savvy with tax law and the function of Trusts. If you want your children to become Trustees and Beneficiaries, it is vital they use a professional, so that their inheritance can be grown with minimum risk. It is worth noting here that Independent Financial Advisers and Solicitors will be able to assist your Trustees with any technical problems, but there will be a fee involved, unless they are an existing client who pays for ongoing services.
Being a Trustee is a role of great responsibility and an individual can face personal liability if these responsibilities are not met. Trustees must answer to several people, not least the Beneficiaries and the Tax Man. If your children are Beneficiaries and Trustees, they only have to answer themselves, so will act in their own best interest and will ensure that the Trust acts in a compliant and ethical fashion.
Time commitments are another responsibility to take into consideration. The administration of a Trust can consume a great deal of a person’s time. That is why it is wise to appoint a Trustee who can control their own time (i.e. taking time off work as and when they need to). Again, of course, professional help can be sought to reduce the amount of administrative time is required.
A Trustee is taking on a role which could easily be abused by an unscrupulous person. To avoid the manipulation of the Trust, it is a paramount that you select Trustees of supreme integrity. Again, if the Beneficiaries are also the Trustees, chances are that they will act with this veracity, as this also benefits them. Close family and loved ones, who you know will act in your best interests, are also good choices for Trustees.
4. Continuity and Succession
As previously stated, a Trust could span 125 years, which is why it is a good idea to appoint Trustees who are younger than you. Evidently, the longevity of a Trust makes the chances of one or more of the Trustees dying during its lifetime highly probable. To solve this, your Trust needs to implement a mechanism whereby a successor to the Trustee will be automatically appointed. If you opt to elect your children and spouse, or indeed other family members as Trustees, the natural successors would be their children, grandchildren and so forth.
The location of the Trustees is significant on a couple of levels. Firstly, when you decide to set up your Trust, the Trustees will need to be present. If you have got to fly them in from Australia, the founding of the Trust and any subsequent meetings may prove a little tricky! At the end of the day, if they cannot get to the signing meeting, are they really the right person for the role?
Location can also determine how well the Trustees understand the needs of the Beneficiaries; of course, this only applies if you are selecting Trustees who are not your children or close family. The role of the Trustee is to act in the best interests of the Beneficiaries, so if they live hundreds of miles apart, do they really know them, ergo, will they act with their best interests at heart?
Electing a Trustee is a choice that needs to be carefully considered and should certainly not be rushed into. The ideal Trustee is a person who will perfectly execute your wishes, is savvy to the technical elements of the Trust, responsible and flexible, young enough to act as Trustee for decades to come and, above all else, someone you unreservedly and wholly trust to act in the best interests of your loved ones. A poor choice could adversely affect your beneficiaries’ welfare, so be prudent in your choice.
The first step in achieving your goals is to discuss your current concerns with one of our qualified Financial Planners.