What is the role of a Trustee?

You may have been appointed as a Trustee in someone’s Will or thinking about appointing someone you trust as a Trustee within your own Will, BUT what does it actually mean and what does the Trustee do?

Let’s take a look…

A Trustee is someone appointed to look after and manage the assets within a Trust and administer/distribute the Trust in accordance with the instructions set out.

A Trustee must always act in the best interests of the beneficiary, act honestly and fairly towards the beneficiaries of the Trust, whilst ensuring that they follow the terms of the Trust.

When appointing Trustees within your Will (perhaps for a Trust where your children, grandchildren or great-grandchildren, will be the beneficiaries, whilst under the age of 18), you can appoint a maximum of four Trustees, although you can appoint reserve Trustees if you wish. In the majority of cases people will choose the same executors and Trustees however, this is not always the case and you can appoint different Trustees and Executors.

Who to choose as a Trustee…

If you are placing property or land into a Trust, then you will need a minimum of two Trustees.

After knowing how many Trustees you need, you need to have a think about WHO would be the best Trustees.

Trustees must be at least 18 years of age and able to take on the role. Now, this may sound obvious but taking on the role and responsibility as a Trustee can be more suited to some than others and just because someone has reached the age of 18 does not necessarily mean they are able to take on such a responsibility.

Another consideration to think about is; your Trustees MUST be able to work together. Where you have more than one Trustee they must be able to make a UNANIMOUS decision before an action is taken and thus being able to work together is imperative.

It may go without saying, BUT your Trustees must have capacity, be of sound mind and be trustworthy.

Trustees can be your family or close friends, whilst others opt for appointing professionals (especially where the Estate may be quite complex). However, even if a professional is not appointed, a family or friend that is appointed as a Trustee can always seek professional help as and when required if they think it is necessary.

So, what is the role of the Trustee?

As we have said, the Trustee must act in accordance with the terms of the trust and always act in the beneficiaries best interests, but additional responsibilities include:

Act fairly (this is important where there is more than one beneficiary);
Protect the assets that are within the Trust;
Insure the assets of the Trust if necessary;
Distribute the income of the Trust to the beneficiaries;
Distribute the capital to the beneficiaries;
Keep accounts and an accounting history of all transactions;
Complete Tax Returns and pay any tax that may be due to HMRC;
Declare all income and Capital Gains Tax that is payable;
If Inheritance Tax become payable, notify HMRC;
Keep a record of any income and expenses from the Trust;
Take reasonable care when making any investments;
Register the Trust;
Act in accordance with the Trustee Act 2000.

Remember, ALL Trustees must act UNANIMOUSLY.

Trustees must not personally benefit from the Trust.

All this may seem a large burden to place on your Trustees but professional help is always available to Trustees to support with managing trusts if required.

If you would like to have a free chat about your options or making a Will, please contact us on info@TotalLegacyCare.co.uk
or 01727 865 121

Leah Waller

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Nil rate Band Discretionary Trusts: Are they still useful?

Nil Rate Band Discretionary Trusts were popular, and VERY useful, prior to 9 October 2007 when the Transferable Nil Rate Band was introduced.

Before 9 October 2007, the Nil Rate Band could not be transferred between spouses and so if it was not used on first death (and everything passed to the surviving spouse) this Nil Rate Band was lost unless a deceased spouse had a Nil Rate Band Discretionary Trust within their Will.

The Nil Rate Band Discretionary Trust allowed for the spouse that passed first to leave assets up to the available Nil Rate Band to beneficiaries (usually their spouse and children) in a Trust, this would use their Nil Rate Band upon their death and those assets would remain outside the surviving spouse’s Estate (whilst in the Trust) and so no Inheritance Tax would be incurred on those assets upon the death of the second spouse.

If there was no Nil Rate Band Discretionary Trust is place and the deceased spouse simply left all their assets to the surviving spouse then this would accumulate with their existing Estate and could mean that Inheritance Tax would be payable as only one Nil Rate Band would be available to take advantage of upon the death of the surviving spouse.

The advantage of a Nil Rate Band Discretionary Trust, was that guidance could be given to the Trustees, to treat the main beneficiary as the surviving spouse during their lifetime with the other beneficiaries (children or grandchildren) only benefiting following the death of the surviving spouse. This would mean that the surviving spouse would still be provided for, and have access to those assets, during their lifetime although they would not form part of their Estate.

Now that the Nil Rate Band is transferable between spouses, is the Nil Rate Band Discretionary Trust redundant?

Not quite! There are still some advantages to using a Nil Rate Band Discretionary Trust and these are briefly set out below:

For UNMARRIED couples

The Transferable Nil Rate Band is only available to couples that are married or that have entered into a Civil Partnership, and so for those couples that choose not to marry or enter into a Civil Partnership they are unable to take advantage of the Transferable Nil Rate Band. This is where the Nil Rate Band Discretionary Trust can come in very useful.

To make use of an Additional Transferable Nil Rate Band where a previous marriage ended in the death of a spouse

If a previous marriage ends in death then the surviving spouse can use the Nil Rate Band of their deceased spouse, this is not limited to just one spouse and so you could benefit from multiple Nil Rate Bands should you have multiple marriages end in the death of a spouse.

However, these cannot be transferred by you, should you die and leave your estate to a surviving spouse and so all of those Nil Rate Bands (save for your own) will have been lost.

This is where a Nil Rate Band Discretionary Trust can be used to take advantage of the accumulated Nil Rate Bands from the marriages that have ended in the death of a spouse.

An example:

Frank and Sylvia are married. Both Frank and Sylvia are widowed with each of their deceased spouses leaving their entire estate to them.

If Frank and Sylvia both include a Nil Rate Band Discretionary Trust within their Will (to benefit each other and their children) to use both their own Nil Rate Band as well as any Transferable Nil Rate Band that is available to them then, upon Frank’s death assets to the value of his Nil Rate Band, plus that of his first wife’s Nil Rate Band, will pass into the Nil Rate Band Discretionary Trust, with the remainder passing to Sylvia.

Upon Sylvia’s passing, her estate can benefit from her own Nil Rand Band as well as that from her first husband and the combined estate will have benefited from FOUR Nil rate Bands.

To benefit children following the surviving spouse’s needs being looked after

This approach is beneficial where it is not certain what the needs of a surviving spouse will be upon the first death.

Having a Nil Rate Band Discretionary Trust to include the surviving spouse and children allows the needs of the surviving spouse to be taken care of first before deciding how to distribute the income and capital in relation to the remaining trust assets.

Reducing the Inheritance Tax liability on second death

By having a Nil Rate Band Discretionary Trust in place, this can mean that no Inheritance Tax is payable on the first death, as the Nil Rate Band will pass into a Trust and the remainder to the surviving spouse. When the surviving spouse passes there will only be Inheritance Tax payable on the value of their Estate minus their Nil Rate Band. However, the property/assets put into the original Nil Rate Band Discretionary Trust will not accumulate with the surviving spouse’s Estate as these are in Trust and so if the value has increased then this will not impact the Inheritance Tax liability upon second death.

Preventing the loss of the Residential Nil Rate Band through the Taper Threshold

Using a Nil Rate Band Discretionary Trust can direct assets away from the surviving spouse so that their Estate does not exceed the Taper Threshold (currently £2million) for the Residential Nil Rate Band.

Currently, if an Estate exceeds a value of £2million, then the Residential Nil Rate Band is reduced by £1 for every £2 over the £2million.

If an Estate value exceeds £2.7million then there will be no Residential Nil Rate Band available.

Using a Nil Rate Band Discretionary Trust to keep the Estate value below £2.7million (or, ideally, below £2million) can mean that the Residential Nil Rate Band can still be taken advantage of, to its full extent, upon second death.

These matters can be quite complex and we are happy to discuss any of your own circumstances in more detail if you think that this may be useful.

If you would like to have a free chat about your existing Will or making a new Will, please contact us on info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

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Month: September 2020