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The importance of choosing the right trustee
Families and individuals establish trusts for a wide variety of reasons, whether to protect family wealth, preserve assets across generations, provide for vulnerable beneficiaries or support long-term succession planning. Whatever the purpose of the trust, its successful operation depends upon effective stewardship, sensible decision-making and continuity over time.
When establishing a trust, one of the most important decisions is who should act as trustee. Many people initially look to family members or close friends whom they trust and who understand their circumstances. In some cases, this can work very well.
The responsibilities and risks of trusteeship
Acting as a trustee brings significant legal responsibilities. Trustees are responsible for managing trust assets, complying with tax and reporting requirements, keeping appropriate records and exercising their powers in accordance with the terms of the trust and their fiduciary duties. Individuals can sometimes be reluctant to take on these responsibilities, particularly where trusts are expected to continue for many years or hold significant assets.
Even where individuals are willing to act, practical difficulties can arise over time. A trustee may retire, lose capacity, move abroad or simply no longer wish to continue in the role. Trustees can also become exposed to personal liability if mistakes are made in the administration of the trust.
Trustee liability and professional trustees
As a matter of law, trustees are generally personally liable for the obligations and liabilities they incur in their capacity as trustee, even where they are entitled to recover those liabilities from the trust fund. Whilst trustees will often have rights of indemnity and reimbursement from trust assets, those protections may not always be available in full, particularly if trust assets have diminished in value, been distributed or if a trustee has acted outside the scope of their powers or duties. Trustee indemnity insurance may be available in some circumstances, but it does not remove a trustee’s responsibilities, nor does it provide a complete solution to the challenges associated with long-term trust administration. For many families, the appointment of a professional trustee can therefore provide additional reassurance and support.
Trust Corporations and Trust Companies
Why appoint a trust company?
A trust company can offer a number of advantages over an individual trustee. Unlike an individual, it provides continuity because it does not retire, lose capacity or cease to exist when particular advisers leave the organisation. This avoids the need to appoint replacement trustees and transfer trust assets whenever there is a change in personnel. Although the legislation contains an automatic vesting provision to facilitate the transfer of trust property on the change of trustees, it does not apply to all assets and additional formalities are often required. These can be avoided by the use of a corporate trustee as the legal entity remains the same.
A trust company can also provide an independent and objective perspective when decisions need to be made between beneficiaries whose interests may not always align. In addition, where a trust company acts as trustee, liability is generally contained within the corporate entity itself, providing an additional layer of protection for those responsible for administering the trust. These features make trust companies particularly well suited to long-term trusts, trusts holding substantial assets and trusts involving complex family or succession planning arrangements.
Trust companies and trust corporations: what’s the difference?
A trust corporation is a type of trust company, but a trust company is not necessarily a type of trust corporation. A trust company is generally a company established to act as trustee of one or more trusts. Whereas a trust corporation has a specific statutory status under the Trustee Act 1925 and related legislation by virtue of satisfying certain legal requirements.
This distinction is important because trust corporations benefit from certain statutory powers that are not available to every company acting as trustee. For example, in certain circumstances, a sole trust corporation can exercise powers that would otherwise require at least two individual trustees, including giving a valid receipt for capital monies and overreaching beneficial interests on the sale of land.
Michelmores Trust Corporation Limited
Professional trusteeship through MiTCo
Michelmores Trust Corporation Limited (MiTCo) is Michelmores’ dedicated trust corporation and is regularly appointed to act as trustee of family trusts and other private wealth structures.
MiTCo combines the continuity and independence of a corporate trustee with access to the expertise of Michelmores’ Tax, Trusts & Succession team. Its directors include experienced private wealth practitioners who are regularly involved in complex trust, tax and succession planning matters. This enables MiTCo to draw upon extensive experience in trust administration, succession planning, taxation and wealth structuring whilst maintaining a dedicated focus on its role as trustee. Clients therefore benefit from both professional trusteeship and specialist legal support where required.
Supporting modern trust administration
Trusts are becoming increasingly complex and trustees are facing growing expectations in relation to governance, compliance, record keeping and reporting obligations. Professional trustees can play an important role in helping families and individuals navigate these challenges whilst ensuring trusts continue to operate effectively and in accordance with their intended purpose. Through MiTCo, Michelmores provides a trustee service focused on continuity, independence and the long-term stewardship of trusts for current and future generations. It can bring an independent voice to trustee decision-making and thereby assist in managing conflicts of interest, reducing the risk of disagreements between family members and promoting consistent decision-making over time.
Further information
If you have any questions or would like further information about Michelmores Trust Corporation Limited and its trustee services, please get in touch.