Seven Questions Every Trustee Should Ask Each Year
When someone agrees to become a trustee, it's usually because they want to help a family member or fulfil the wishes of someone they respected.
Very few people become trustees because they have a detailed understanding of trust law or taxation.
Over the years, I've met many trustees who have done an excellent job of looking after the trust's assets but have been worried that they might have overlooked something important.
One conversation particularly sticks in my mind.
A gentleman had been acting as trustee for several years. The trust owned an investment portfolio and had made occasional distributions to beneficiaries. Nothing unusual had happened, yet he arrived at our meeting with one simple question:
"Am I actually doing everything I'm supposed to be doing?"
It was a great question.
In many ways, being a good trustee isn't about knowing every piece of tax legislation. It's about asking the right questions at the right time.
Here are seven questions I believe every trustee should ask at least once a year.
1. Have the trustees met recently?
Many trusts continue for years, sometimes decades.
It's easy for trustees to deal with matters informally, but it's still good practice to review the trust's affairs regularly.
A simple annual meeting can help ensure everyone understands what has happened during the year and what decisions may need to be made.
2. Has anything changed within the family?
Families rarely stand still.
Beneficiaries get married, divorce, have children, move abroad or experience changes in their financial circumstances.
These events don't necessarily change the trust itself, but they may influence future decisions made by the trustees.
3. Have we complied with our tax obligations?
Trustees should ask themselves whether:
any trust tax returns are required
income has been reported correctly
Capital Gains Tax needs to be considered
payments to HMRC have been made on time
Many trustees only think about tax when HMRC writes to them.
Ideally, it should be part of the annual review.
4. Does the Trust Registration Service need updating?
One of the more recent responsibilities for many trustees has been complying with the Trust Registration Service.
Changes to trustees, beneficiaries or other key information may need to be updated.
It's worth reviewing the position each year rather than assuming everything remains correct.
5. Are our records up to date?
Good administration makes everything easier.
Trustees should keep clear records of:
meetings
decisions
income received
investments
distributions
correspondence
If questions arise in the future, good records often provide the answers.
6. Are we making the most appropriate decisions for the beneficiaries?
Trustees have a duty to act in the best interests of the beneficiaries.
That doesn't always mean making distributions.
Sometimes the best decision is to retain assets.
Sometimes it isn't.
The important thing is that decisions are made thoughtfully and are properly documented.
7. Should we ask for advice?
One thing I've learnt over the years is that good trustees don't pretend to know everything.
The best trustees recognise when it's sensible to ask for professional advice.
That might be because:
property is being sold
investments are changing
tax legislation has changed
beneficiaries' circumstances have altered
Seeking advice doesn't mean you've failed as a trustee.
Quite the opposite.
It demonstrates that you're taking your responsibilities seriously.
Jonathan's Tip
One of the best habits a trustee can develop is setting aside an hour each year to review the trust.
Even if nothing has changed, that annual review often provides reassurance that everything is in order.
If something has changed, it's usually much easier to deal with it sooner rather than later.
Further reading
If you're acting as a trustee, you may also find these articles helpful:
Trust Taxation Explained: The Key Issues Trustees Should Understand
The Trust Registration Service: Which Trusts Must Register with HMRC?
A final thought
Being a trustee is an important responsibility.
Fortunately, you don't have to deal with every issue on your own.
The trustees we work with aren't expected to know every tax rule or reporting obligation. What they do exceptionally well is recognise when they need advice and make sure important decisions are properly considered.
If you're acting as a trustee and would like reassurance that everything is on the right track, we'd be delighted to help.
