Learning Material Sample
Trusts3. Investment and administration of trustsChapter learning outcome: To understand the rules covering the investment of trust assets and the administration of trusts
When an individual creates a trust, it may need to be registered with HMRC.
The Fifth Anti-Money Laundering Directive came into force on 10 January 2020 with includes a section on the Trust Registration Service (TRS). The TRS, which came into effect in September 2020, provides a register for trustees tor record information. The... Shortened demo course. See details at foot of page. ...ty, country of residence and details of their interest in the trust.Although trustees are treated equally responsible for a trust, under these rules they must nominate a ‘lead trustee’ as the HMRC point of contact. The lead trustee has their own unique taxpayer reference (or unique reference number if not taxable). The trustees of a trust fund must understand their powers and duties in relation to investment of the trust fund. Under the Trustee Act 2000 trustees have an underlying duty of care. Trustees have a duty to maximise investment returns (Cowan v. Scargill 1984). They also have a duty not to expose the trust fund to risk associated with hazardous and speculative investment; in other words, they have a duty to protect the trust capital.
Most modern trusts have specific clauses setting out the trustee’s investment powers. It is not unusual for trustees to be given discr... Shortened demo course. See details at foot of page. ...is ensures that older investment restrictions overcome by the Trustee Investment Act 1961 are not invokedSection 4 and 5 of the Trustee Act 2000 are concerned with the standard investment criteria and advice. Trustees have a duty to consider the suitability of the investments they make and the need to diversify. Trustees must have regard for the standard investment criteria and obtain and evaluate investment advice unless it they reasonably conclude it to be unnecessary or inappropriate. Confirming advice in writing may be desirable, but this isn’t a formal requirement. Rule against variation Trusts are normally irrevocable once established - that is, trust property cannot be recovered (returned to the settlor) unless the trust is worded to the contrary. A trust cannot usually be varied once created unless it is established as power of appointment or discretionary trust. In these situations, beneficiaries can be varied if they fall within classes specified in the trust. Permitted variations There are certain circumstances where the general rule relating to the revocation or variance of t... Shortened demo course. See details at foot of page. ... to extinguish an adult beneficiary’s interest where that beneficiary has not given consent to the variation.The above provisions will involve applying to the court for consent, which could prove costly and there is no guarantee of being permitted to make the requested variation. Finally, under the rule in Saunders v Vautier (1841) , if all possible beneficiaries are over 18, of sound mind, and in agreement with each other, they can demand a trust’s property from the trustees and, in doing so, put an end to the trust. A charitable trust must be of a charitable nature, for the public benefit and wholly and exclusively charitable. Prior to the Charities Act 2006 (the provisions of which have now been encompassed in the Charities Act 2011), they were divided into four main categories: Relief of poverty Advancement of education Advancement of religion Other purposes beneficial to the community, e.g. hospitals, animal protection, etc Following the... Shortened demo course. See details at foot of page. ...sposals to and by charities are usually exempt from capital gains tax.Outright gifts to charities are exempt from inheritance tax, either during lifetime or on death. Furthermore, if 10% or more of the net estate is left to charity by a will, then the 40% rate of IHT payable on the taxable portion of the estate is reduced to 36%. Gifts to charitable trusts may qualify for income tax relief under the gift aid system or payroll giving scheme. Terminology
The Scottish equivalent of a settlor is a truster A life interest is a life rent and a life tenant is called a life renter A remainderman is called a fiar An appointment of new trustees is called an assumption of new trustees Statute... Shortened demo course. See details at foot of page. ...ies, or the trust deed registered in Books of Council and Session.The Perpetuities and Accumulation Acts 1964 and 2009 do not apply in Scotland. Under the new Trusts and Succession (Scotland) Act 2024, there are no restrictions on the accumulation of income. Trusts that are created overseas are subject to the laws of the country in which they are created and, though this is often based on UK law, most overseas jurisdictions are more flexible on perpetuities and accumulations.
There could be tax advantages in creating an overseas (offshore) trust) where the settlor is not a long-term UK resident. The tax advantages have been progressively diminished, with the latest change being the abolition of domicile status (in respect of tax) and the introduction of the concept of a long-term UK resident and associated rules (from April 2025). Not all countries recognise trusts. If an overseas trust is to be created, it may wise to do so in a country where the legal system ... Shortened demo course. See details at foot of page. ...HT purposes. There is the risk of double taxation through the application of periodic and exit charges and an IHT charge on the settlor’s death.There is a concession for trusts settled before 30 October 2024 whereby this rule will not apply as long as the trust is entirely located outside of the UK; additions to the trust after 30 October 2024 are subject to the GWR rules. The legislation is complex and will take time to become fully embedded. The trustees of existing EPTs will need to consider the long-term residence status of the settlor and the potential for periodic and exit charges in respect of IHT to apply. If such charges are payable they will need to consider the liquidity of trust investments. |
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