What is a trustee?
Being a trustee is often an important way to help a friend or family member. It means you take responsibility for money that’s been set aside in a trust for someone else. You’ll manage the money for them, only use it in their best interest and obey the rules of the trust.
- What is a trust?
- What is a trustee?
- Trustees and tax
- Being a trustee – what are you responsible for if something goes wrong?
- If you’re asked to be a trustee
What is a trust?
Trusts are a way to organise money so it can benefit a person or group of people – sometimes for someone who can’t manage the money themselves.
There are lots of reasons why someone might set up a trust. For example:
- to provide for a family member with a permanent disability
- to pay for long-term care costs for an older person
- to leave money to a child, and have someone manage it until the child turns 18 (or older)
A trust is not like a company – it can’t own money in its own right. All money in the trust is legally owned by the trustees. However, if you’re a trustee, the money in the trust can’t usually be used for your benefit, but can only be used for things set out in the rules of the trust.
What is a trustee?
It’s natural to want to help, but you should only become a trustee if you’re sure you can take on the responsibility.
As a trustee, you’re responsible for using the money or assets in a trust to benefit someone else. You won’t be able to benefit from the trust yourself (unless the trust agreement says you can).
What you can and can’t do might be set out in detail in the trust document.
For example, it might say the trust is to pay for a child’s education. If that’s the case, you can’t use the money for anything else.
If the trust is a ‘discretionary trust’ the trustee will have more freedom to make decisions.
For example, if the trust is set up to benefit a number of young children, then you and any other trustees can use it for anything you agree is good for any one of the children, like paying for a school trip.
Trustees and tax
Trustees often have to pay tax on behalf of a trust. Depending on the type of trust, it might have to pay:
- Income Tax
- Inheritance Tax
- Capital Gains Tax
Just like filling in a tax return for a person, you and the other trustees have to report details of the trust to HM Revenue & Customs and make sure the tax is paid.
Being a trustee – what are you responsible for if something goes wrong?
Being a trustee is a legal responsibility, and you might be worried about what happens if you do something wrong – but really, all you have to do is act in the best interests of the person the trust is for (it’s called your ‘fiduciary duty’).
If you don’t you can be taken to court, and the penalties can be severe.
However, if the trust can’t pay its debts or if you don’t take reasonable care in making a decision that loses money for the trust, you can be liable as a trustee.
However, as long as you’ve done everything you should do, you should not be liable personally.
If you’re asked to be a trustee
If you’re asked to be a trustee, think carefully about whether it’s right for you. Here are some things to consider.
- Being a trustee can really help someone important to you. If someone asks you to be a trustee, it usually means they trust you to do the right thing for them and the people who benefit from the trust.
- It’s a lot of work and responsibility, and you might end up being liable for losses made by the trust if you don’t carry out your duties properly. Some trusts can take a lot of your time to manage properly. As a trustee usually you won’t be paid, or get any benefit yourself. You’ll be carrying out your duties as a trustee for the benefit of others.
- Being a trustee is a long-term commitment. Some trusts have a set end point – for example, when a child turns 18 – but others can go on for up to 125 years! You could be a trustee for decades in some cases.
If you’re not sure what to do, have a chat with the person setting up the trust.
You’ll get a better idea of how much work it’ll take, and whether it’s really important that you’re the one to do it.
They might have lots of other people in mind if you say no.
It would also be sensible to take professional advice.