Introduction to Trust Administration
There are many types of trusts available. Among offshore centres, discretionary trusts, accumulation and maintenance, life interest and purpose trusts are the norm, although many other types of trust are also available. The type of trust established will depend on the needs and specifications of the individual, known as the settlor of the trust.
An individual, or corporate entity, responsible for distributing the property of the decedent is known as the trustee. This individual or entity is named by the settlor in the trust documents.
The trustee can be held liable for any mistakes made when handling and distributing the trust’s assets. The trustee, who must remain independent and exercise proper control over the trust property, must be mindful of every decision they make and action they take while administering the trust.
Trust administration refers to the trustee’s management of trust property in accordance with the terms specified within the trust’s documents. It also involves notifying the beneficiaries of the trust, and the eventual transfer of property held within the trust to the beneficiaries listed, all of which is transferred in accordance with the precise wishes of the settlor.
A number of steps are required to safeguard effective trust administration and ensure the process for the trustees is facilitated throughout.
The trustee is responsible for trust administration, and holds the duty of fiduciary. The trustee is responsible for protecting the assets of the trust and ensuring they are used in accordance with the trust setup. The duties of trust administration inevitably vary according to the nature of the trust.
At Chesterfield, we have a diverse and experienced team of skilled administrators with extensive knowledge of each type of trust. Our team has the ability to run a wide range of trusts and our professional trustee services are second-to-none.
Trust Officers and Duties
When it comes to setting up a trust, often a settlor will convey how he, or she, would like the administration of the trust to be run. The format of a letter of wishes is useful, as it typically contains instructions or additional information for the trustees.
In terms of trust administration, a number of duties and responsibilities must be followed. If not, the trustee breaches these duties, and may be held liable for any loss obtained and may consequently be removed from the position of trustee.
A trustee’s main duties consist of management and investment of the trust fund, accumulation and distribution of income and generally running the trust, taking into account the interests of the trust beneficiaries.
Responsibilities include filing appropriate tax returns, maintaining proper records and accounts for each action taken by the trustee, and settling all the settlor’s debts and liabilities following their death.
They must also open a properly titled trust account with a financial institution, and ensure proper professionals are in place, including accountants, estate agents and lawyers. Further, they must obtain and transfer legal title to real estate and personal property. Only after all of the above has been achieved can the trustee then distribute the trust assets to the beneficiaries.
Duty of Prudence
Trustees must be prudent with any and all actions taken on behalf of the trust. Under all circumstances, the trust must be administered with a degree of skill, caution and care.
The trustee is obligated to follow the requirements of the trust deed. At all times, the trustee must:
- Use reasonable care and diligence when performing their duties as trustee
- Invest funds in a prudent manner
- Avoid conflicts of interest with the trust beneficiaries
- Ultimately act as if the trust was their own
Duty of Impartiality
The trustee must also be impartial when distributing trust assets. The trustee has a duty of balance in interest in terms of current versus future beneficiaries. The trustee also has a duty to act solely in the interest of the beneficiary, and cannot have any self-interest in the trust assets. For this reason, an independent third party must be appointed as trustee.
Trustees are held to a high standard in order to ensure proper management of the trust and its assets. What’s more, when making distribution decisions, the trustee must consider the facts and circumstances surrounding each group of beneficiaries, and must distribute assets based on the specifications outlined by the settlor.
In a discretionary trust, however, trustees are not required to explain their decisions. Often a trustee will hire a professional consultant to give expert advice in the management of certain aspects of the trust. Examples of these include investment advisors, property agents and managers, legal advisors and tax advisors. All of these assist in running the trust in the most proficient manner possible.
Benefits of Trust Administration
Setting up a trust is highly advantageous as it eliminates estate taxes and capital gains, and avoids the hassle and expense of going through the probate process. Distribution of assets can be quicker, while a higher level of privacy is given, since the trust’s documents are not available to the public.
Trust accounting is a specialised field. It is often a requirement of the trustees and their accountants to divide the trust fund between income and capital, depending on the specifics contained within the trust deed.
Chesterfield supplies various accountancy services tailored to the needs of our clients, all of which are carried out in line with each jurisdiction’s unique regulatory requirements. Our accounting department can provide a vast array of services, including bookkeeping and production of year-end accounts.
Chesterfield provides many dedicated auxiliary services required by clients for the effective management of their offshore trust. This includes general consultancy work, property management, trade related consulting, mergers & acquisitions, financial market assessments, and a catalogue of detailed and industry specific expert services, as needed by our clients’ offshore trusts.
Please Contact Chesterfield to discuss your unique trust administration requirements.