Trusting trusts and trustees
In turbulent times trusts can provide a way to manage uncertainty and reduce risk going forward.
During the pandemic we learnt to live with a greater degree of uncertainty than many of us have experienced before. We looked ahead to a return to normality but, rather than re-establishing the old routines, we face continuing challenges on a global scale with far-reaching and complex implications for us all on an individual and family level.
Against this backdrop we continue to look for our own ways of managing uncertainty and reducing risk, particularly for our loved ones. In this context trusts, as they have done for centuries, offer security: a means to protect assets for those who, for a variety of reasons, need some form of ongoing protection. As they come in many different shapes and sizes, and can be specifically tailored, professional advice should always be taken to help decide whether the trust route is the right one and which type is best suited to the particular circumstances. It is also vital to work through the most important decisions: what does the settlor of the trust wish to achieve and who should be appointed as trustees?
Most practitioners have seen what can happen when children inherit substantial assets at 18 when the law allows them full control if there is no trust in place. Or when a vulnerable member of the family has unfettered access and funds are dissipated. Or the long lasting damage caused to relationships when the wealth passes to the second family through inadequate planning and the children of the first marriage lose out. In all these cases, trusts can provide a framework to achieve fairness and a means to protect beneficiaries from themselves and from the people who tend to gather round to help them spend their wealth.
A different form of protection is afforded by trusts holding business or agricultural assets. It can be advantageous to put the shares of a family business or a farming interest in trust, either as a way to prevent fragmentation in the years ahead, or else to secure tax benefits, particularly if the business owner is contemplating a sale at some point.
In any trust scenario the fiduciary relationship between the trustees who own and control the assets and the beneficiaries for whom the assets are held is paramount. This is a relationship of trust and confidence meaning that the trustees are obliged to act always in the interests of and for the benefit of the beneficiaries. In deciding who will be appointed as trustees, the starting point is usually other members of the family. There may also be close friends of the settlor who are willing to take on the role and who understand the personalities, and also legal, tax and accountancy advisers who often combine similar knowledge of the family dynamics with relevant professional expertise.
As the last two years have shown us, much of what lies ahead in life is unpredictable, but with careful planning and good advice, trusts can offer a tried and tested way of taking control and managing the uncertainty.
