What is a trustee? - Money Advice Service
son holding the trust assets under the terms of the trust (“Trustee”) and the person or per- sons entitled to distinguish it from other types of trust relationships. A trustee is a person or firm that holds or administers property or assets for the A trustee is granted this type of legal title through a trust, which is an A marital trust is a fiduciary relationship between a trustor and trustee for. While professional trustees will be well versed in the requirements of a trustee, often non-professional trustees acting for trusts do not fully.
The trustee may be either a person or a legal entity such as a companybut typically the trust itself is not an entity and any lawsuit must be against the trustees.
A trustee has many rights and responsibilities which vary based on the jurisdiction and trust instrument. If a trust lacks a trustee, a court may appoint a trustee. The trustees administer the affairs attendant to the trust. The trust's affairs may include prudently investing the assets of the trust, accounting for and reporting periodically to the beneficiaries, filing required tax returns and other duties.
In some cases dependent upon the trust instrument, the trustees must make discretionary decisions as to whether beneficiaries should receive trust assets for their benefit. A trustee may be held personally liable for problems, although fiduciary liability insurance similar to directors and officers liability insurance can be purchased. For example, a trustee could be liable if assets are not properly invested.
In addition, a trustee may be liable to its beneficiaries even where the trust has made a profit but consent has not been given. Either immediately or eventually, the beneficiaries will receive income from the trust property, or they will receive the property itself. The extent of a beneficiary's interest depends on the wording of the trust document.
One beneficiary may be entitled to income for example, interest from a bank accountwhereas another may be entitled to the entirety of the trust property when he attains the age of twenty-five years.
The settlor has much discretion when creating the trust, subject to some limitations imposed by law. The use of trusts as a means to inherit substantial wealth may be associated with some negative connotations; some beneficiaries who are able to live comfortably from trust proceeds without having to work a job may be jokingly referred to as "trust fund babies" regardless of age or "trustafarians".
Trusts may be created purely for privacy. The terms of a will are public in certain jurisdictions, while the terms of a trust are not. Trusts may be used to protect beneficiaries for example, one's children against their own inability to handle money. These are especially attractive for spendthrifts. Courts may generally recognize spendthrift clauses against trust beneficiaries and their creditors, but not against creditors of a settlor.
Trusts frequently appear in wills indeed, technically, the administration of every deceased's estate is a form of trust.
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Conventional wills typically leave assets to the deceased's spouse if anyand then to the children equally. If the children are under 18, or under some other age mentioned in the will 21 and 25 are commona trust must come into existence until the 'contingency age' is reached.
The executor of the will is usually the trustee, and the children are the beneficiaries. The trustee will have powers to assist the beneficiaries during their minority.
What are the rights and responsibilities in a trust relationship?
In some common law jurisdictions all charities must take the form of trusts. In others, corporations may be charities also.
In most jurisdictions, charities are tightly regulated for the public benefit in England, for example, by the Charity Commission. The trust has proved to be such a flexible concept that it has proved capable of working as an investment vehicle: This form of trust was developed by Paul Baxendale-Walker and has since gained widespread use.
Complex business arrangements, most often in the finance and insurance sectors, sometimes use trusts among various other entities e. Trusts may allow beneficiaries to protect assets from creditors as the trust may be bankruptcy remote. For example, a discretionary trust, of which the settlor may be the protector and a beneficiary, but not the trustee and not the sole beneficiary.
In such an arrangement the settlor may be in a position to benefit from the trust assets, without owning them, and therefore in theory protected from creditors. In addition, the trust may attempt to preserve anonymity with a completely unconnected name e.
These strategies are ethically and legally controversial. The tax consequences of doing anything using a trust are usually different from the tax consequences of achieving the same effect by another route if, indeed, it would be possible to do so. In many cases, the tax consequences of using the trust are better than the alternative, and trusts are therefore frequently used for legal tax avoidance.
For an example see the "nil-band discretionary trust", explained at Inheritance Tax United Kingdom. Ownership of property by more than one person is facilitated by a trust. In particular, ownership of a matrimonial home is commonly effected by a trust with both partners as beneficiaries and one, or both, owning the legal title as trustee.
In Canada  and Minnesota monies owed by employers to contractors or by contractors to subcontractors on construction projects must by law be held in trust. In the event of contractor insolvency, this makes it much more likely that subcontractors will be paid for work completed. Legal retainer - Lawyers in certain countries often require that a legal retainer be paid upfront and held in trust until such time as the legal work is performed and billed to the client, this serves as a minimum guarantee of remuneration should the client become insolvent.
Types[ edit ] Alphabetic list of trust types[ edit ] Trusts go by many different names, depending on the characteristics or the purpose of the trust. Because trusts often have multiple characteristics or purposes, a single trust might accurately be described in several ways. For example, a living trust is often an express trust, which is also a revocable trust, and might include an incentive trust, and so forth. The concept of an asset-protection trust encompasses any form of trust that provides for funds to be held on a discretionary basis.
Such trusts are set up in an attempt to avoid or mitigate the effects of taxationdivorce and bankruptcy on the beneficiary. Such trusts may be proscribed or limited in their effect by governments and the courts. Unlike an express trust, a constructive trust is not created by an agreement between a settlor and the trustee.
A constructive trust is imposed by the law as an "equitable remedy". This generally occurs due to some wrongdoing, where the wrongdoer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it. A constructive trust is, essentially, a legal fiction.
For example, a court of equity recognizing a plaintiff's request for the equitable remedy of a constructive trust may decide that a constructive trust has been created and simply order the person holding the assets to deliver them to the person who rightfully should have them. The constructive trustee is not necessarily the person who is guilty of the wrongdoing, and in practice it is often a bank or similar organization.
The distinction may be finer than the preceding exposition in that there are also said to be two forms of constructive trust, the institutional constructive trust and the remedial constructive trust. The latter is an "equitable remedy" imposed by law being truly remedial; the former arising due to some defect in the transfer of property. In a discretionary trust, certainty of object is satisfied if it can be said that there is a criterion which a person must satisfy in order to be a beneficiary i.
In that way, persons who satisfy that criterion who are members of that class can enforce the trust. In these types, a directed trustee is directed by a number of other trust participants in implementing the trust's execution; these participants may include a distribution committee, trust protector, or investment advisor. The directed trustee's role is administrative which involves following investment instructions, holding legal title to the trust assets, providing fiduciary and tax accounting, coordinating trust participants and offering dispute resolution among the participants Dynasty trust also known as a 'generation-skipping trust': A type of trust in which assets are passed down to the grantor's grandchildren, not the grantor's children.
The children of the grantor never take title to the assets.
- What is a trustee?
- What are the rights and responsibilities in a trust relationship?
This allows the grantor to avoid the estate taxes that would apply if the assets were transferred to his or her children first. Generation-skipping trusts can still be used to provide financial benefits to a grantor's children, however, because any income generated by the trust's assets can be made accessible to the grantor's children while still leaving the assets in trust for the grandchildren.
An express trust arises where a settlor deliberately and consciously decides to create a trust, over their assets, either now, or upon his or her later death. In these cases this will be achieved by signing a trust instrument, which will either be a will or a trust deed. Almost all trusts dealt with in the trust industry are of this type. They contrast with resulting and constructive trusts. The intention of the parties to create the trust must be shown clearly by their language or conduct. For an express trust to exist, there must be certainty to the objects of the trust and the trust property.
In the USA Statute of Frauds provisions require express trusts to be evidenced in writing if the trust property is above a certain value, or is real estate. The entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion.
At the end of the term, the financial property is transferred tax-free to the named beneficiaries. This trust is commonly used in the U. Combines elements of both fixed and discretionary trusts. In a hybrid trust, the trustee must pay a certain amount of the trust property to each beneficiary fixed by the settlor. But the trustee has discretion as to how any remaining trust property, once these fixed amounts have been paid out, is to be paid to the beneficiaries.
A resulting trust may be deemed to be present where a trust instrument is not properly drafted and a portion of the equitable title has not been provided for.
In such a case, the law may raise a resulting trust for the benefit of the grantor the creator of the trust.
In other words, the grantor may be deemed to be a beneficiary of the portion of the equitable title that was not properly provided for in the trust document. The trust is often run by a committee, and can act similarly to a development agencydepending on the provisions of its charter. A trust that uses distributions from income or principal as an incentive to encourage or discourage certain behaviors on the part of the beneficiary.
For example, if the trust is set up to benefit a number of young children, you and any other trustees can use it for anything you agree is for the benefit of any one of the children, like paying for a school trip.
What is a charity trustee?
Trustees and tax Trustees often have to pay tax on behalf of a trust. Depending on the type of trust, it might have to pay: Find out more about trustee tax responsibilities on the GOV. Get help with trusts and tax Call HM Revenue and Customs for help with questions about how trusts are taxed.
Call charges apply, find out more on GOV. What is a trustee responsible for if something goes wrong? Being a trustee is a legal responsibility, and you might be worried about what happens if you do something wrong.
All you have to do is act in the best interests of the person the trust is for. Here are some things to consider.
You should obtain legal advice before setting up a trust. Your lawyer will assist you with, in particular, drawing up the principal document creating the trust, which is called the "trust deed". The Essential Requirements of a Trust Introduction A trust must have the following essential elements: Therefore a valid trust cannot come into being by accident.
The settlor The settlor creates the trust. The settlor must be an adult 20 or over and be of sound mind. The settlor may be a company or even another trust. There can be more than one settlor of a trust. Trustees Any person who can own property may be a trustee. A minor someone under 20 can be a trustee, but a court would have to appoint someone to act as trustee until the minor turns Usually an independent trustee is included as one of the trustees, and this will often be the settlor's lawyer or accountant.
Having an independent trustee helps avoid any suggestion that the settlor continues to have control of the trust assets, in which case Inland Revenue may argue that the trust is a "sham" and therefore invalid.
Trustees have a duty to acquaint themselves with the terms of the trust deed, and also with who the possible beneficiaries may be and what the assets and liabilities of the trust are. Trustee decisions must be unanimous, unless the trust deed allows for majority decisions. Trustees must ensure that proper records are kept of their decisions. Trustees may not delegate their duties or powers to others unless the trust deed allows this.
Trustees may be paid for their services only if the trust deed specifically provides for this. A trustee will not be liable for any losses suffered by the trust if he or she acts prudently and considers the interests of all beneficiaries discretionary or otherwise. For more information about trustees and their duties, see How to be a trustee.
The beneficiaries These are the people who benefit under the trust. Under a discretionary family trust, the beneficiaries are usually the immediate and extended family. If the trustees breach their duties, this is called a "breach of trust".
Only the beneficiaries have a right to bring an action in the courts against the trustees for a breach of trust. See How to be a trustee for information on the duties of trustees. What should be included in it? The trust deed the legal document that sets up the trust should deal with the following matters: For example, if you had personally guaranteed a bank loan or the lease of the business premises, a claim could be made against you personally.
In that case, all of your personal assets would be available to the person claiming against you. But if your personal assets had been transferred to a trust, these assets may be protected. But to be protected, the transfer of the assets to the trust must not be seen to have been carried out to defeat creditors. The transfer could certainly be set aside if it could be proved that when you set up the trust you were insolvent or a creditor was pursuing a major claim against you. Claims by family members or others If your assets are transferred into a trust during your lifetime, those assets will not be subject to claims after your death from family members or others whom you do not wish to share in those assets.
This Act sets up a presumption that all relationship property will be split equally between you if you split up.