There are many benefits to using trusts as the ownership “vehicle” for families owning a range of assets situated in countries around the world. Indeed, trusts offer great flexibility in supporting estate planning as they can be easily adapted to families’ changing circumstances. Thus, they remain a popular tool to preserve family wealth for the long term. Yet, it is sometimes surprising that comparatively little consideration goes into choosing a trustee. After all, when a trust is established, the legal ownership of the assets is signed over to the trustee, making the trustee play an important role with commensurate responsibility.
In this article, I will aim to answer the question, what are the key characteristics you should consider when choosing a trustee.
1) Independence
A Trustee must be able to act in the best interest of the beneficiaries of the trust. This objectivity is key to ensuring that the trustee’s decision-making process is based solely on the provisions outlined in the trust and not on personal or financial interest in the trust or its assets. Therefore, a trustee should be free of conflict of interest.
Such conflicts may arise, for example, where the only trustees are members of one family. Even with the very best of intentions, it can sometimes be difficult and stressful for a family member to be impartial and objective when making decisions that will inevitably impact other family members. Appointing a third-party independent trustee alongside that family member can minimise the risk of such conflict arising and also provide a much-needed objective sounding board, as well as regulatory and professional standard.
Another instance is when trust’s assets are managed in-house (i.e. either by the trustee itself or by a connected entity to the trustee). Normally trust’s assets are managed by a third-party bank/asset managers appointed by the trustee with the trustee monitoring the performance of that bank/asset manager.) Practically, it might be difficult in these circumstances for the trustee to demonstrate independent decision making and a lack of financial interest in the assets (in the form of management and other fees deriving from the investment management mandates accruing to the trustee or its connected entity).
Good practice requires a complete separation of activity with the trustee’s eye firmly on the monitoring of the investment performance. However, if there is no alternative to entrusting the investment mandate in-house or to a connected entity, transparency over the investment process, strong ‘ethical walls’ and ongoing and rigorous performance monitoring by the trustee is essential. This will serve to reassure beneficiaries as to independent decision making, strong reporting process and afford the trustees a clear accountability path towards beneficiaries to demonstrate that they are acting in the best interest of the beneficiaries and not theirs.
2) Reputation
Don’t just take a well-known brand at face value. A proven track record and/or recommendation from a reliable source can provide substance. Ask for guidance from your trusted advisers: they are likely to know from experience and from working in the industry who the reliable partners are. Once you have a selection of names, check the company’s website, what they stand for and whether they are based in a stable and reputable jurisdiction. As part of your decision making process, ask for the company’s regulatory ‘bill of health’ and any regulatory issues they may have encountered in the past five years.
3) Stability/employee turnover
A trust is set up with long-term goals in mind, so it is important that your trustee also has a long-term lens and track record. When was the company established? Who are its ultimate owners? What are their long-term plans?
Another key element is staff turnover. Families rightly expect a continuing, personal, long-term relationship with a trustee who they know and who knows them, their family history, values and goals. Enquiring about staff turnover will give you an insight into the internal makeup and culture of the trustee company and should strive to reassure you as to the continuity of your trustee relationship.
4) Expertise
In an increasingly complex world, your trustee must strive to be aware of the latest legal/regulatory developments that may impact your structure. Access to a knowledge pool, whether in-house or external, for issues as diverse as property transactions, tax and regulatory developments in relevant jurisdictions is essential. A thorough trustee will aim to ensure that there is continuous monitoring of the developments impacting the trust and be ready to discuss this with you and any changes that require to be made to adapt the structure to the new environment.
5) A proactive approach
Aim to have at least one meeting annually with your trustee for a full debrief on the trust’s activities and an opportunity to share updates on your family situation. For example, if some family members are planning to move to a different country as this could have a major impact on the trust. Additionally, a trustee should be willing to provide challenge (with good intent), offer alternative views and ask the difficult questions. You want a trustee who has a pro-active and personal approach so that your communication is meaningful and effective.
6) Cyber safe – strong and rigorous internal processes
Arguably, one of the most important areas to cover with your trustee. Enquire about the trustee’s data security and storage approach and how well any technical processes are supported by regular staff training and awareness. Make sure you are happy with any internal procedures to sign off on payments, using rigorous internal protocols such as the ‘four eyes’ principle – where internal payments are signed and approved by two people – call backs and email encryption.
7) Cost transparent
Quite rightly, costs must be considered when appointing a trustee, but get the balance right. A good trustee will need to uphold the integrity of the structure put in place. This means adequate meetings, record-keeping and regulatory and legislative monitoring to ensure your family trust is well managed and able to stand the test of time. This means a certain cost. A reputable trustee company, however, should also be able to provide you with complete transparency in relation to those costs, so that you can see exactly what you are paying for and why it is worthwhile.
Conclusion
Choosing your trustee is one of the most important decisions that you make for yourself and your family. Probe, do your research and invest the time to get to know the prospective trustee company well. Once comfortable with your choice, be aware that this is the start, not the end of the journey.
For more information about our bespoke services, please contact Natacha Onawelho-Loren.