November 2021

What is a “trustee” and what does the role actually entail?


You may have decided to use trusts to help your family and now need to choose a trustee. Or perhaps you’ve agreed to be a trustee on someone else’s trust, but you’re unsure of what this responsibility actually involves?

So, read on to find out exactly what a trustee is and what the role will entail.

Trusts protect money or assets

A trust is a legal framework that protects money and assets.

There are different types of trusts, each with various benefits depending on why you’re ringfencing money.

Typically, trusts involve the person doing the planning, known as the “settlor”, putting money or assets aside for a specified individual, known as a “beneficiary”.

The settlor then appoints someone to oversee the trust, known as a “trustee”. For most types of trust, the trustee will oversee the trust and give access to the beneficiary at a time of the settlor’s choosing.

Discretionary and bare trusts also offer certain Inheritance Tax (IHT) benefits, depending on certain criteria. This means settlors can potentially pass on more of their money to their loved ones in the right circumstances.

The main responsibilities of trustees

Whether you’re in the process of setting up a trust for your beneficiaries or you’ve been asked to be a trustee for someone else, it’s useful to know the main responsibilities that a trustee will face during their tenure.

Here are just five of the main responsibilities a trustee will have:

  1. Overseeing the trust

A trustee’s main responsibility is to oversee and manage the trust. That means they need to read and fully understand the details of the trust, as well as any direct instructions from the settlor.

This will include knowing who the beneficiaries are and what they’re entitled to. As part of this, if there are multiple beneficiaries then they must treat them all as equal. Any decisions they make must be in all beneficiaries’ interest, rather than one losing out for the benefit of another.

More broadly speaking, trustees need to keep on top of paperwork and know the status of the trust at all times.

  1. Handling tax

As some trusts confer certain tax advantages and reporting conditions, the trustee will be responsible for administering these correctly.

Indeed, this part of the job also comes with the unfortunate responsibility of paying any fines or financial penalties if they mismanage the tax situation in any way.

It’s worth remembering that, if a trustee is uncertain on how to keep a handle on the trust’s tax position, they’re allowed to employ a financial professional to assist them.

  1. Reviewing investments

Unless the settlor has specifically restricted it, trustees have a legal right to make investments using the money in the trust. This can be important for issues such as inflation, which could erode the value of the beneficiary’s inheritance if the trust is held over a long period of time.

It’s important to note that these investments must be made with the beneficiary in mind. So, whether a trustee decides to target income or even growth, it must be done in the beneficiary’s best interests.

Much like with tax, trustees can delegate investment duties to a professional if they want to be able to invest on the beneficiary’s behalf but aren’t fully confident in doing so themselves.

  1. Keeping accurate records

As a result of the changes that can occur in the trust, it’s important for trustees to keep accurate records. This is both for HMRC and tax, but also so that the beneficiaries can see that the trustee has acted fairly and as expected.

It can often be sensible to keep all records relating to the trust, but the crucial ones that HMRC tend to suggest keeping include:

  • Bank statements
  • National savings bonds or certificates
  • Dividend vouchers
  • Receipts for any incurred expenses
  • Details of all tax payments.
  1. Giving beneficiaries access to the trust

Finally, the trustee will also need to know how and when to distribute the money or assets to the beneficiaries. This will include finalising and closing the trust.

While a trustee can seek advice from a professional at this stage, they will have to administer this part of the process personally.

What makes a good trustee?

With these responsibilities in mind, it’s worth considering what sort of qualities a trustee should have to be successful in the role.

As the name suggests, they should be trustworthy, a safe pair of hands that will do right by the settlor and beneficiaries.

Often, it can be sensible to choose a family member or close friend to be a trustee. This makes them more likely to understand family dynamics and relationships, meaning the decisions they make are in the best interests of the family at large.

It can be advantageous for a trustee to have done their own estate planning. This can mean that they’re more familiar with what they have to administer, ensuring that they’ll be able to keep up with the processes and paperwork.

Above all, a trustee needs to be organised. This helps them to stay on top of the various duties that they’ll need to perform, giving the settlor peace of mind that their wishes will be carried out on their death.

Work with us

If you’d like to know more about how trust planning could help you and your family, or you’re a trustee in need of a helping hand, then please do get in touch with us at Holborn Financial.

Email or call 020 8946 8186 to find out more.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.