I’m a Trustee – What Am I Actually Supposed to Do?

People become trustees for all sorts of reasons.

Sometimes they are asked by a parent or other family member. Sometimes they are appointed under a Will. And sometimes they agreed to become a trustee many years ago without really appreciating what the role might involve.

Then, at some point, I receive a telephone call that goes something like this:

“Jonathan, I’m a trustee, but I’m not really sure what I’m supposed to be doing.”

It’s more common than you might imagine.

Most people don’t become trustees because they have an interest in trust law or taxation. They agree because someone they know and trust has asked them to take on the role.

The difficulty is that being a trustee brings responsibilities with it.

And those responsibilities don’t disappear simply because nothing appears to be happening within the trust.

Nothing has changed for years. Do we actually need to do anything?

Possibly.

One of the misconceptions I come across is that if a trust hasn’t made any distributions or sold any assets, there is nothing for the trustees to think about.

That isn’t necessarily the case.

The trust may still receive income from investments, property or bank accounts.

There may be tax reporting requirements.

Information held about the trust may need to be kept up to date.

And the trustees should still understand what the trust owns and why they are holding those assets.

The lesson? - A quiet trust isn’t necessarily an inactive trust.

Does the trust need a tax return?

Not every trust will need to complete a tax return every year.

Whether one is required will depend on the type of trust, the income and gains arising and the wider circumstances.

This is one reason why I prefer trustees to review the position each year rather than simply assume that last year’s answer will always remain the same.

Investments change.

Property is sold.

Income levels change.

Distributions are made.

Beneficiaries’ circumstances can change too.

Any of those things may alter the tax position.

The lesson? - Don’t assume that because a tax return wasn’t needed previously, one will never be required.

What about the Trust Registration Service?

This is another area that can easily be overlooked.

Many trusts have obligations under HMRC’s Trust Registration Service, and trustees may also need to ensure that information already recorded remains correct.

The important point is not to treat registration as something that is dealt with once and then forgotten about.

Changes to trustees, beneficiaries or other relevant details may need attention.

The lesson? - If you’re a trustee, make sure you know whether the trust is registered and whether the information held about it is still correct.

Can we just give some money to one of the beneficiaries?

Perhaps – but this is exactly the sort of question I like trustees to ask before making the payment.

Trustees need to understand the terms of the trust and whether they have the power to make the proposed distribution.

There may also be tax consequences for the trust or the beneficiary.

A payment that appears straightforward can sometimes have consequences that weren’t immediately obvious.

That doesn’t mean distributions should be complicated.

It simply means the trustees should understand what they are doing before the money leaves the trust.

The lesson? - Ask the question before making the distribution, not afterwards.

Keep a record of the decisions you make

Trustees sometimes focus heavily on tax returns and HMRC and forget another important part of their role: keeping proper records.

If the trustees make an important decision, there should usually be a record of why that decision was made.

That might involve:

• making a distribution to a beneficiary

• selling an investment

• buying or selling property

• changing investment strategy

• appointing or retiring a trustee

• taking professional advice

Good records don’t need to be complicated.

They simply help demonstrate what the trustees considered and why a particular decision was made.

Jonathan’s Tip

Once a year, put aside an hour and ask:

“Has anything changed within the trust during the last 12 months?”

Look at the assets.

Look at the income.

Consider the beneficiaries.

Check whether any distributions have been made.

And make sure the tax and registration position is up to date.

If nothing has changed, you have the reassurance of knowing you have checked.

If something has changed, it is usually much easier to deal with it now than several years later.

Further reading

For more detailed guidance on the tax responsibilities of trustees:

• Trust Taxation Explained: The Key Issues Trustees Should Understand

• The Trust Registration Service: Which Trusts Must Register with HMRC?

• Trust Tax Returns: What Trustees Need to Know

How we can help

At Tax Matters, we regularly work with trustees, families and their other professional advisers.

Sometimes that means preparing the annual trust tax return or dealing with the Trust Registration Service.

In other cases, trustees come to us before making a distribution, selling an asset or making another significant decision because they want to understand the tax consequences first.

And sometimes the question is simply:

“Are we doing everything we should be doing?”

That can be just as valuable a conversation.

A final thought

Being a trustee doesn’t mean you need to become an expert in tax or trust law.

But it does mean taking an active interest in the trust and recognising when advice may be needed.

The best starting point is often a very simple question:

“Have we overlooked anything?”

If you’re a trustee and you’re not completely sure of the answer, my team and I would be pleased to help.