11th October 2016
Once an NRB (Nil Rate Band) trust is up and running, it’s important for trustees to be aware of their duties and compliance requirements. Many persons are named as both executors and trustees in a Will and are unaware that, once the administration of an estate is complete, the role of trustee kicks in and requires a focused mind to discharge duties properly.
Trustees are in a fiduciary position, meaning that they are being trusted to consider whether and when to exercise powers over the trust property by appointing it within the class of beneficiaries. Even if they decide not to exercise their powers, their fiduciary position means they have a duty to at least consider periodically whether to exercise that power and to adopt a considered, neutral thought process in doing so. Letters or Memoranda of Wishes prepared in advance by the person setting up the trust can be extremely useful guidance to the trustees.
The NRB trust is a fully discretionary trust which means that no beneficiary has a fixed entitlement to any assets within it, but simply a ‘hope’ that they will receive some portion of the trust fund should the trustees decide to exercise their powers in their favour. Oftentimes, the trust fund consists simply of a half share of the family home or a charge over that half share, meaning at some point the value secured on a half share of the family home will be paid back to the trust, typically when the surviving spouse dies.
However, this does not mean the trustees can sit back and take their eye off the trust fund as an investment. Trustees have a duty to regard the ‘standard investment criteria’ which means considering the suitability of the investment for the purpose of the trust. When the purpose of the NRB trust is simply Inheritance Tax planning, then the need to diversify the trust fund is lessened, but if circumstances change, such as where the family home needs to be sold in order to pay for care fees, the trustees will need to consider the purpose of the trust as expressed in any Letter of Wishes and take advice from an independent financial advisor on how to produce what they consider to be a suitable level of income and capital growth for the trust’s objectives.
Making a balanced overview of the class of beneficiaries while at the same time keeping up to date with ever-changing tax legislation, compliance such as the need to enquire as to any potential U.S. links with the beneficiaries under the Foreign Account Tax Compliance Act (‘FATCA’), often with no entitlement to be paid other than out-of-pocket expenses, means being a trustee is often a thankless task. It is also a role that can lead to claims of breach of trust by the beneficiaries if a dispute arises as to whether a trustee has acted reasonably and in line with his statutory and fiduciary duties.
Professional trustees can be a good option to act alone or with other members of the family to balance any potential conflict of interest should a trustee also be a beneficiary. This can be a problem if there are tensions between family members, or there is a need to take particular care in managing the needs of a particular beneficiary, for example, because of a disability or other vulnerability. As ever, the key to navigating these issues is to take good advice from a suitably qualified trusts and estates solicitor at an early stage.
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