3 - Investment and Administration Flashcards
Investment Powers and Duties
What are the relevant parts of the Trusts Act 2000?
- Section 1: Duty of care;
- Section 3: General power of investment.
What are the requirements around conversion and apportionment?
Which particular case is it more important?
Conversion relates to how capital assets are eventually converted into cash, apportionment to how that cash is distributed.
Trustees must consider the interests of all of the beneficiaries.
This is particularly important where there is a life interest entitled to all the income and a remainderman entitled to the capital.
Trust Act
What are the trustees duties in relation to investments per the trustee act?
- To act in the best interests of benficiaries;
- To balance income/capital needs of the beneficiaries;
- To exercise reasonable care and skill relevant to their knowledge, and seek advice if necessary;
- Follow the provisions of the trust deed;
- Ensure invesments are suitable and diversified;
- Regularly review investments;
- Utmost diligence to avoid losses.
Conversion/Apportionment
Impact of the Trusts (Capital and Income) Act 2013
Before this act trustees had to sell all wasting assets (eg copyrights) or reversionary assets within a year.
Trusts (Capital and Income) Act 2013 abolished this requirement.
However the trust itself either before or after this act was entitled to overrule state whether such assets should be sold and when.
NOTE: Even though new trusts post 2013 don’t legally have to sell wasting assets within a year, the legal requirement to balance the needs of life interest vs remaindermen means they likely need to do this anyway.
Per the Variation of Trusts Act 1958, for whom can trusts be varied?
By order of a court trusts can be varied for the benefit of:
- Any beneficiary incapable because of infancy;
- Any contingent beneficiary;
- Any unborn people;
- Anyone with a discretionary interest under a protective trust.
When might a court decide to vary a trust under the Variation of Trusts 1958 act for a given beneficiary?
What would stop them?
On application on behalf of a beneficiary where it would be in their interest.
With consideration to social, moral, eductional and financial needs.
Any adult beneficiary would need to approve.
They can’t vary the beneficial interests of the trust.
Differences between charitable trusts and other trusts
- Charitable trusts can’t be void for uncertainty;
- Perpetuity - After 6/4/10 non-charitable trusts max 125 years life;
- Accumulation - Charities limited to 21 years;
- Investment income and gains in charitable trusts are tax free.
What is an excluded property trust?
Who is it suitable for?
Excluded property trusts are discretionary trusts used to ring-fence overseas assets and protect them from IHT on death.
Used by non-UK domiciled UK tax residents to protect their overseas assets, since only UK assets should be liable to IHT.
It ensures they remain outside the estate even if the settlor is a beneficiary or becomes UK domiciled. However no new assets can be transferred in after they become UK domiciled.
Not affected by trustees residence status.
Implications of becoming UK domicile
Becoming UK domicile enables you to full use of spouse exemption from IHT.
However it means all worldwide assets are subject to UK IHT.
Options available for becoming domiciled if your spouse is UK domiciled
You can elect to become UK domiciled if your spouse is (get full exemption but get taxed on worldwide assets).
This election is irrevocable.
It can be made at any time up until 2 years after the death of the UK domiciled spouse.
It can also be backdated by up to 7 years, though not before 6/4/13.
Tax advantages of excluded property trusts
Even if the settlor later becomes UK domiciled:
- there is no IHT due on the initial transfers into trust;
- there are no periodic or exit charges (even though the trust is discretionary);
- no POAT or reservation of interest charges, even if the settlor is a beneficiary;
- the trust assets are outside the estate of the settlor and no IHT is due when they die.
