Several important changes to how trusts operate now apply after the new Trusts Act 2019 (“Act”) took effect from 30 January 2021. The Act imposes more obligations for settlors, trustees and beneficiaries. Trustees should take action. They should review the trusts they are responsible for to ensure they operate as intended and comply with the Trusts Act 2019.
Fit for Purpose Trusts
Many trusts may need modifying. Many will remain “fit for purpose” or, with some minor variations, made to be. Some may need to be “resettled” to new ones which are more “fit for purpose”. In some situations, it may be prudent for those trusts which have served their purpose to be “wound-up”. After trustees have reviewed the trusts and determined there remains a sound basis for the trust, they should consider:
- If they are happy, and are able, to assume the extra responsibilities the Trusts Act 2019 will impose on them. Those who aren’t happy, or who are unsuitable, should be removed or “retired” and, if appropriate, new trustees appointed.
- How the trust will be managed and administered. For example, they’ll need to consider how trustees’ decisions are made and recorded; how trust documents are retained; and how professional consultants are appointed.
Do Settlors Need to Make Changes?
We recommend settlors familiarise themselves with their respective obligations and roles. They should determine what action they must take to fulfil their obligations, including whether they have authority to:
- Remove and appoint trustees
- Remove and add beneficiaries
- Vary trust deeds
Trusts Act 2019 and Trustees’ Duties
The Trusts Act 2019 imposes strict duties trustees must comply with. Every trustee must hold the trust’s deeds and all accompanying variations. At least one trustee must hold details of the trust’s property any other important documents required to administer the Trust, such as:
- Records of key decisions, including removing and appointing trustees and beneficiaries
- Copies of legal contracts and loan agreements
- Financial accounts and tax returns (where these are prepared)
- Memorandum of wishes
Trusts Act 2019 – Basic Presumptions
The Act provides basic presumptions that trustees provide beneficiaries with certain basic information, including:
- The fact that the beneficiary is one of the trust’s beneficiaries;
- Trustees’ names and contact details;
- Prompt notification of trustees’ removal and appointments;
- Beneficiaries rights to request copies of a trust’s terms;
- Beneficiaries rights to request information such as how a trust is administered and details of the trust’s property.
These presumptions are subject to obligations that trustees must consider before furnishing the information. Trustees should consider how likely it is that a beneficiary will receive the trust’s property in the future. They also should consider what the settlor’s intentions were when the trust was established.
Trustees may consider removing and adding beneficiaries if the range of beneficiaries should be expanded or limited. Trustees should review settlors’ memorandums or letters of wishes. These documents should have set out why the trust was established, and who was principally intended to benefit from the trust.
If none exist, settlors could be reminded to document their wishes.
Trust documents set out why the trust was established, and who was principally intended to benefit from the trust.
The Trusts Act 2019 imposes five strict and mandatory duties that all trustees must comply with. These duties may not be excluded or modified in a trust deed. In cases where a trust’s deeds (including existing trust deeds) wording implies so, that exclusion or modification is invalid.
The five mandatory duties imposed on trustees are a duty to:
- Be fully acquainted with the trust’s terms
- Comply and act in accordance with the trust’s terms
- Act in good faith and honestly at all times
- Act in accordance with the trust’s objectives and for the beneficiaries’ benefit
- Exercise trustee powers for proper purpose
Trusts Act 2019 ~ Ten “Default Duties”
The Trusts Act 2019 also imposes ten additional “default duties” that trustees must comply with – unless they are modified or excluded in the trust’s deeds. These specify that trustees have duties to:
- Exercise skill and care
- Invest prudently
- Refrain from using trustees’ powers for their own benefit
- Frequently and actively determine how they carry out their duties and obligations
- Avoid committing or binding trustees to a future exercise (or non-exercise) of a discretion
- Avoid conflicts of interest between the trust’s beneficiaries and themselves
- Remain impartial towards beneficiaries
- Not to profit from their position as trustees
- Not to act for personal reward
- Act unanimously
To some extent, many existing trust deeds may already modify some of these duties. For example, it’s common for some trust deeds to modify the duty to refrain from acting for personal reward. Some allow professional trustees to charge for their services.
Trustees should regularly review trust documents
The Trusts Act 2019 introduces additional trustee responsibilities when they appoint agents and solicitors to undertake certain functions on their behalf. Trustees should regularly review such arrangements. They must notify other trustees and anyone else who may be authorised to remove and appoint persons under these arrangements.
With the increased focus and responsibilities that the Act imposes on trustees, trustees should review how trusts are administered. For example, they should review processes for making and recording trustees’ decisions.
Existing trustees should re-evaluate if they are willing to assume the extra responsibilities the Act impose on them. If they aren’t happy, decisions may need to be taken to replace them with new trustees.
Trust Deed Variations
After considering these issues, and determining if changes are needed, trustees should ascertain if the trust deed allows such variations. And if the deed does allow it, the scope and extent of the powers to make changes should be determined.
The new Act allows a trust’s lifespan to be extended from eighty years to one hundred and twenty-five years. Trustees should decide whether to take advantage of the increased lifespan.
Should the Trust Continue or Be Wound-up?
Trustees should determine if there’s an ongoing need for the trust or if it’s time to wind it up. In doing so, they should review why the settlors established the trust.
They should determine whether the trust’s purpose remains valid and appropriate. For example, if a trust was created primarily to help protect assets from creditors, trustees will need to consider if that objective has changed.
Trustees should also review the trust’s beneficiaries. They’ll need to determine whether the current beneficiaries will continue to benefit from the trust. They should also consider if there are other beneficiaries who may benefit.
Finally, trustees should review what property, investments and other assets the trust holds. They should determine whether asset values have increased or whether the trust is earning income.
Working with a Tax Consultant
Engaging a professional and experienced tax consultant will help you actively manage your trust properly. They will help your trust achieve what it was set up to do. A tax consultant can help you review your obligations so you can confidently fulfil them, including:
- Evaluating trust documents to determine if they will comply with the new Trusts Act 2019, particularly compliance with mandatory trustee duties.
- Establishing proper systems to help ensure trustees retain required trust records.
- Determining what information should be given to (or withheld from) beneficiaries.
- Establishing and document investment strategies, whenever appropriate.
- Ensuring trustees meet “actively and regularly” and consider how they exercise their powers.
- Managing taxation issues.
If you would like your trust reviewed, or if you’d like more information about the Trusts Act 2019, please get in touch with the Business Advisory Services team.