New Model Adviser - For professional financial planners

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

The legal pitfalls facing trustees, executors & guardians

Financial and legal obligations, as well as potential time requirements, must be taken into consideration when appointing trustees, executors or guardians

The legal pitfalls facing trustees, executors & guardians

People are typically unaware of the challenges they are likely to face when they become trustees, executors or guardians.

The first issue is the suitability of those appointed. At a personal level, problems arise when the role is accepted without a proper understanding of the legal obligations, the time commitment and the financial risk that may incur.

Trusts and beneficiaries

In the case of trusts, the trust deed sets out the objects. A trustee is an entity or person appointed to manage the assets held within that trust for the beneficiaries. It is a fiduciary role, meaning trustees must act in good faith and ensure their own interests do not conflict with their duties. They cannot make a profit from this role unless the trust deed permits it.

The Trustee Act 2000 imposes a statutory duty of care on trustees. The act relates to all trusts in existence, stating any trustee ‘must exercise such care and skill as is reasonable in the circumstances, having regard in particular:

  •  to any special knowledge or experience a person holds themself out as having, and;
  • if they act as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.’

Someone who is a member of a profession needs to consider whether their appointment is in their professional or personal capacity. They will also have to demonstrate a high level of expertise. A layperson would also be expected to discharge their duties in accordance with the Act, and would be personally liable for any claims arising from actions they have taken (or not taken), unless there are statutory protections in place.

Trustees can become personally liable for actions undertaken in their trustee capacity when personally appointed. This liability applies even if there is professional indemnity cover in place.

Executors of an estate

Estate work can be equally onerous. Friends or relatives named as executors may not appreciate this is also a fiduciary role and involves a duty of care to all beneficiaries.

Duties will include determining the assets and liabilities of the estate, protecting those assets, obtaining grants of representation or probate, collecting in all assets, recovering debts and administering the estate, settling all tax liabilities and making returns to HM Revenue & Customs and, finally, distributing the estate. Where there is no will, or in situations where there are some contentious issues, it may be necessary to obtain court consent.

Guardianship considerations

Where there are minors, the appointment of guardians is crucial. Grandparents are often called on or volunteer for the role without due regard to the practical issues this appointment may raise. Do they have the time, financial means, mental capacity or physical space to take on grandchildren?

Similar issues arise when appointing executors or trustees. It is a difficult decision, and appointing professionals alongside family members can be a wise compromise that helps ensure appropriate governance.

Forewarned is forearmed

Whoever is being appointed needs to understand the proposed role and appreciate the legal and practical responsibilities before making a commitment. That means having an opportunity to review the terms of a will, trust deed, lasting power of attorney and any letters of wishes in advance. It is always better to refuse a personally tempting duty than to fail to fulfil it through a lack of preparedness.

Lynne Rowland is partner at Kingston Smith

Share this story

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
More Content
7348.62 -5 0.07% 04:35
More Content
More Content

ADVICE

26 Comments Top 35 Next Gen Advisers: goals for the profession

Top 35 Next Gen Advisers: goals for the profession

In a recent catch up with our Top 35 Next Generation Advisers , Young planners told us the changes they wanted to see to make the profession better. Here are the top 10.

twitter_banner

INVESTMENT